Petroleum Futures Wipe Out Early Losses
Wednesday’s DOE inventory report was less bearish than Tuesday’s API data, which helped petroleum futures wipe out early losses, and keep the 2019 year-end mini rally alive. That short-lived sell-off relieved some of the technical overbought pressure that had built up after 4 days of gains, and leaves the door open for a test of the September highs.
RBOB gasoline continues to show surprising counter-seasonal strength despite inventories sitting at record highs for this time of year, heading into the weakest 2 months for consumption. At this pace, it looks like there’s a strong chance gasoline inventories will break all-time highs at some point in January.
China announced new tariff exemptions on 6 US petroleum-based products in the latest sign of easing trade tensions. While the announcement is good news for several US refiners, none of the products listed are consumed in engines. Another reminder of both the ongoing transition of the US from the world’s largest importer to its largest exporter of petroleum products, and the fact that petroleum is becoming more and more about plastic production and less about motor fuels.
Today’s interesting read: A recap of the anticipated impacts of the IMO diesel spec change, which could impact 90% of global trade in some form or fashion. As the article concludes, “…For the whole world to change specification of a product on the same day is almost unheard of.”
While the Ag community got a big shot in the arm this week with the expected inclusion of the $1/gallon biodiesel blenders credit in the congressional spending package, there was a bit of bad news Wednesday when the White House indicated the Renewable Volume Obligation for 2020 would not change from the preliminary proposal. While this does mean an increase in the amount of biofuels mandated to be blended in the US, the Ag lobby seems to have lost this round of the small-refinery exemption debate. Ethanol RINs continued to languish following the news while Biodiesel RINs managed to bounce off of Tuesday’s lows.
Right on Cue, the EIA this morning published a look at Biodiesel production in the US. While it’s no surprise that the Midwest leads the nation in biodiesel production capacity it’s worth noting that Texas is the 2nd largest producing state, which provides a bit of conflict in the ongoing lobbying battles between Big Ag and Big Oil.
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Energy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
Click here to download a PDF of today's TACenergy Market Talk.
WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.