Reports Suggest Stimulus Deal Is Within Reach
Oil prices managed to briefly trade up to fresh nine-month highs overnight, but have since pulled back and are moving sideways in early morning trading. Optimism for faster vaccine rollouts and more stimulus continue to be the themes getting credit for the rally in energy and equity markets, while weak supply/demand fundamentals and the threat of more lockdowns seem to be providing a dose of caution keeping the upward momentum in check.
The API reported more inventory builds last week. The largest was in distillates, which saw an increase of 4.7 million barrels, while crude oil stocks built by 1.9 million, and gasoline stocks increased by 828,000. The DOE’s report is due out at 9:30 central, and after last week’s huge 15 million barrel increase in crude oil inventories (the second largest increase in 20 years) it seems likely we may see a large headline draw as the import/export flow rebalances, and importers begin their year-end storage-at-sea to avoid taxes.
The FED’s open market committee wraps up its last meeting of 2020 today. The CME’s FEDWatch tool shows that the market is pricing in a 0% probability of an interest rate increase at this meeting. Not only do traders not expect rates to go up now, they are giving a 0% probability of a rate hike all the way through June as it’s expected the FED will do everything it can to keep the economy rolling. Speaking of which, while rate changes aren’t expected, the FOMC statement will be parsed for any clue on potential new monetary policy tools that could be used to help bridge the economy until the vaccine spreads faster than COVID itself, but with Congress gridlocked, we may see the fed put pressure on legislators by suggesting fiscal stimulus is what’s needed near term.
Speaking of fiscal stimulus, reports suggest a deal is within reach, which of course we’ve heard several times over the past month. One thing to watch closely is the numerous taxes that may be tied to the package, such as renewable energy credits, and the federal oil spill fee which is set to expire 12/31.
Speaking of the Federal Oil spill fee. It looks like we could see that tax brought before the supreme court in the coming year as a federal court has ruled that oil exporters should not be charged that tax, and the IRS appears to be ready to fight back against any refund requests.
If you need a reminder of the giant scale of a modern refinery, take a look at the article and photos of the hydrotreater being delivered to the P66 refinery outside of St. Louis this week. That plant is scheduled to undergo a major turnaround in the next few months, which apparently includes installation of this new unit.
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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.