Refined Product Prices Knocked Back From Multi-Year Highs
The DOE’s weekly status report threw some cold water on the energy price rally Wednesday, knocking refined product prices back from multi-year highs. Disappointing demand estimates seemed to be the driver behind the selling that took place following the report, while a large draw in crude oil stocks looks temporary due to a surge in exports (that reached a 13 month high) and a large drop in imports that accounted for more than 20 million barrels of crude not hitting US stockpiles last week.
Although the momentum may have been lost, the pullback in prices has been minor, which suggests that we’re just seeing a round of profit taking rather than a change in trend.
Ethanol prices in the Chicago trading hub broke above $2/gallon 3 weeks ago, and then broke $2.50 yesterday as the grain-fueled rally has gone parabolic, adding 20 cents in just 3 days so far this week. China continues to buy record amounts of US ethanol, which is adding to the bullish frenzy in the market that’s becoming akin to the run-up in prices in 2008 when supply for diesel and crude oil struggled to keep up with export demand. As this rapid run-up in prices makes its way beyond the limited scope of wholesale fuel prices and into your grocery store, expect the debate of food vs fuel to heat up again, along with concerns about inflation across all aspects of the global supply chain. Ethanol production ticked up last week, helping US ethanol inventories to rise for the first time in 6 weeks according to the DOE report.
RIN prices are following closely on the heels of ethanol prices, casually adding another 3-4 cents to their all-time highs Wednesday and bringing the weekly gains to 15 cents. At this point, there seems to be little standing in the way of prices continuing to run higher, but the extreme nature of these moves suggests that the drop will be spectacular whenever it finally happens. One warning sign for the bio-bulls: time spreads on crops are expanding their backwardation, suggesting this supply squeeze will end with the new crop.
The Marathon refinery in Texas City leaked hydrofluoric acid Tuesday, which sent two workers to the hospital, and is sure to drum up more debate about the use of controversial use of those dangerous chemicals in refinery operations. The plant, which is one of the largest in the country and has been struggling to return to normal operations since the polar plunge in February, is no stranger to controversy, as it faced one of the deadliest explosions in the history of the industry when it was known as the BP Texas City refinery back in 2005.
A power outage in the panhandle of TX knocked the P66 Borger refinery offline Wednesday, which promises to keep racks in the region tight, just as they’ve been for the past two months.
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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.