Refined Products Stage A 3-Cent Bounce To Wipe Out The Early Losses.
Energy futures were moving modestly lower to start Tuesday’s trading, hovering near multi-month lows in what appears to be a period of consolidation following the OPEC announcement. Weekly charts continue to suggest we could see another big push lower if lows set over the past couple of weeks get taken out, but so far, the attempts at that support have been met with brisk buying suggesting the bulls aren’t throwing in the towel just yet. Right on cue, after touching the lows for the day a little after 7am, we saw refined products stage a 3-cent bounce to wipe out the early losses.
The forward curve charts below show how the market has transitioned from backwardation to contango for both WTI and RBOB over the past month as supplies seem to be healing, and we approach the winter demand doldrums. The forward curve for refinery margins hasn’t changed much during this time, although it still appears that diesel margins will need to carry the weight of weak gasoline margins for the next year. The big negative basis values for diesel in the Gulf Coast, Group 3, and Chicago markets are sure to have some refiners concerned about their future prospects as those negative values are taking $8-$10/barrel off of their margin.
The divergence between big negative basis values on the Gulf Coast and positive values in New York are keeping values for both gasoline and diesel space along Colonial holding in double digit territory. Last year we saw the big premiums to ship products hold through most of December before crashing back into negative territory in January.
Marathon’s Los Angeles refinery reported two different unplanned flaring events to California regulators in the past 24 hours. The first came early Monday afternoon with a 2nd following overnight. LA basis values had been softening of late, but already it appears gasoline values may be ticking higher following this news.
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News & Views
View AllEnergy 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.
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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.