Selloff Stretches To A Sixth Straight Day
Several energy contracts have dropped to 3 month lows this morning as the selloff stretches to a 6th straight day. The main driver of the big move today is an apparent taper tantrum as the FED telegraphs an end to its most recent round of money printing. A secondary catalyst seems to be the fallout from two tropical storm systems reaching the major population centers along the East Coast that may keep many drivers off the road, at a time when it’s already looking like domestic consumption is heading lower.
Energy futures were already looking like they may be due for a big move lower prior to the FED minutes release, and the selloff in equities seems to be adding to the negative sentiment even though the correlation between daily price movements in the two asset classes had broken down in recent weeks. Whenever FED stimulus is a market driver, we experience the strange “Good news is bad news” phenomenon. Yesterday was no different when the FOMC minutes suggested that the Delta variant won’t derail economic recovery in the US (Good news!) which means the FED has less reason to keep injecting money into the system (Bad news for investors wall street bankers!)
As the remnants of TS Fred dump heavy rain across large parts of the country, Henri has gone from an afterthought to a real threat as forecasts continue to shift the storm west. 2 days ago there was no threat to land, and now the New York harbor is showing up in some models, while the terminals from New Haven, Providence and Boston are now all in the forecast cone, suggesting the waterborne deliveries that region relies on are likely to face some disruption over the next few days. The good news is the handful of remaining refineries operating in the region are not in the forecast cone, and Colonial pipeline has spare capacity, which should help keep any supply disruptions contained.
Now that the July lows have been taken out for WTI and ULSD (and will be for RBOB once we roll to winter-specs in 2 weeks) the next stopping points on the charts look like the March lows. That means downside targets $57 for WTI, $1.73 for ULSD and $1.87 for RBOB.
Not much to write about from yesterday’s DOE report, and it didn’t seem to have much influence on the crescendo of selling. Diesel demand continues to look strong, holding above its 5 year range, while gasoline demand looks like it may have made its seasonal turn, and dropped back below its 5 year seasonal range.
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Week 48 - US DOE Inventory Recap
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.