Production Cuts From Saudi Arabia And Russia Are Getting Much Of The Credit For The Continued Rally In Oil Prices
Refined product prices are sliding to start Friday’s session after reaching new multi-month highs Thursday, while oil prices are clinging to modest gains near their highest prices of the year.
Self-fulfilling prophecy: Production cuts from Saudi Arabia and Russia are getting much of the credit for the continued rally in oil prices, even though increased exports from Iran and other OPEC members are reducing the impact of those reductions. Perhaps more importantly, the announced production cuts seem to be encouraging money managers that had sat on the sidelines of the energy market for most of last year to jump back in, which seems to be a major contributor in the recent run-up in prices. We’ll get another look at the weekly CFTC commitments of traders report later this afternoon to confirm (or dispel) that theory.
Basis values are becoming noteworthy again with California gasoline values going through another September surge following 2 more reported refinery hiccups Thursday, which makes supplies of the dwindling 6lb RVP gasoline become even more scarce. LA spot values jumped to a $1.20/gallon premium to futures yesterday, which is both impressive and still half of the premium we saw this time last year.
On the diesel side, there’s a huge difference for ULSD on the west coast vs the Chicago market this morning, with values in California going for 55-65 cents over futures, while Chicago-land ULSD is trading near a 50 cent/gallon discount.
RIN prices continue to come under pressure, with D4 (Bio/RD) values reaching an 18-month low in the mid $1.20s Thursday, while D6 (ethanol) values are following along, essentially pegged to the D4s given that the D4s can be used in place of D6 RINs for compliance purposes.
Hurricane Lee made another favorable small shift to the east in its forecast path, moving the center of the storm further away from the coast of New England, and Irving’s refinery in St. John NB. It’s worth noting that the European models still have this storm hitting very close to the refinery, while the GFS (US) model hits Nova Scotia, and the difference between the two is likely to be meaningful in terms of the potential disruption to that facility. The storm also seems to be moving ahead faster than previous estimates, which should help vessel traffic resume operations almost 12 hours faster than it appeared just a day ago. That’s the good news. The bad news is that Nigel is about to be named and is on a very similar path to Lee, meaning suppliers along the east coast will still have to contend with shipping delays and the terminal allocations or runouts that come with them for at least another week.
Can’t catch a break: The beleaguered refinery in Texas City, which is the 4th largest in the US, and was renamed “Galveston Bay” several years ago in an effort to rebrand the plants image after numerous deadly fires, reported yet another upset yesterday, this time in a hydro treating unit that was caused by a loss of power. The facility is still trying to recover from another fire that hit an FCC unit a week ago, and to finish repairs from a deadly fire in May.
Meanwhile, China’s refinery output reached a record high in August as the new capacity that’s been built in recent years comes online just in time to take advantage of the robust diesel market.
Mexico’s energy minister told local media that the new Dos Bocas refinery that’s been years late and several billion dollars short will be producing at full capacity (around 340mb/day) by the end of the year. IF that facility comes online fully, it will displace a large amount of imports from the US, which is the stated goal of Mexico’s President. Place your bets.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.