Real-World Impact Of Refinery Shutdowns
The fourth quarter is starting on a soft note for energy markets with the big 4 petroleum contracts all trading modestly lower to start the day, after staging a healthy recovery bounce to finish off September. This time yesterday it was looking like we may be setting the stage for a substantial move lower in product prices, but the selling pressure didn’t last long after 8 a.m., leaving the complex stuck in its sideways pattern.
After a rough September, U.S. equity markets are pointed higher to start October trading, but so far that strength has not carried over to energy prices.
Yesterday’s DOE report did little to sway price action as inventory and demand estimates had relatively minor moves. Total refinery runs in the U.S. remain lower now than they were after Hurricane Harvey knocked nearly 1/4th of the country’s capacity offline three years ago, and yet this time there are no supply shortages to speak of as demand continues to lag.
With the seasonal demand slowdown looming for gasoline, and diesel inventories still near record highs, we may see refinery run rates continue to decline over the next month, with more outright closures still a distinct possibility. This article highlights the real-world impact of the refinery shutdowns that have already happened this year.
The CFTC ordered Sunoco LP to pay a $450,000 fine for spoofing crude oil, gasoline and diesel contracts in 2014. The statement says the trader involved used 50-100 lot increments (50,000-100,000 barrels or roughly 2-4 million gallons of notional volume) to push the market towards smaller positions they actually planned to execute, and once done would cancel the larger orders. This is just a day after JP Morgan agreed to pay $920 million for spoofing metals and treasury markets. Based on the size of the fines, you can get a feel for just how huge the banks’ manipulative trading practices were in comparison.
A Rystad energy report released yesterday suggests that U.S. onshore crude production likely peaked in August and will decline over the next year as prices are unlikely to recover enough to spur more drilling activity.
Click here to download a PDF of today's TACenergy Market Talk.
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The 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.