Severe Weather Across Large Parts Of The Country, The NHC Is Giving 50% Odds Of A Tropical System Being Named Over The Eastern Atlantic In The Coming Days
ULSD is leading the energy complex higher after breaking out above the sideways trading range that had held prices the past 7 weeks and is currently holding gains of nearly 15 cents/gallon for the week. If the bulls can maintain the upward momentum and settle above $2.50 today, there’s a strong case to be made on the charts that we’ll soon see prices run up to the 2.60-2.70 range that held prices for about a month this spring.
Values to ship gasoline on Colonial’s line 1 collapsed Thursday after reports of an upset at Exxon’s Baytown refinery, as traders seem be to anticipating a shortage at one of the largest origin points on the pipeline, even though USGC basis values didn’t move much on the news. Meanwhile, Marathon’s Texas City refinery (aka Galveston Bay) refinery continues to have challenges a month after another deadly fire broke out at the facility, with two more unit upsets reported to the TCEQ this week.
California carbon allowances (CCA) prices continue to rally to their highest levels of the year following a workshop Wednesday where regulators presented their intentions to promote tighter requirements and higher credit values. There is now a 3 week window for stakeholders to provide feedback on the revised plan before it moves into the formal rulemaking stages. Interestingly enough, California’s LCFS credit values have dropped near a 2-month low, demonstrating the difference between a market-based credit system that’s incentivized a huge influx of renewable fuel production, and the Cap & trade program that just makes up the amount of credits they’ll sell.
So far there are no reports of damage to energy supply infrastructure from the wave of severe storms sweeping across the southern US this week. So far there are no reports of upsets from either of the 2 TX Panhandle refineries following last night’s deadly tornado in Perryton TX, which is roughly 75 miles northeast of those facilities, although Valero’s McKee facility did report an upset due to thunderstorms Tuesday night and the Borger facility continues to work on repairs after being damaged in the Christmas blizzard.
Besides the outbreak of severe weather across large parts of the country, the NHC is giving 50% odds of a tropical system being named over the eastern Atlantic in the coming days. This system is currently moving off the west coast of Africa and has an early path that could allow it to threaten the US (in an area that’s developed some of the largest storms on record) so will need to be watched. It is rare for a storm to develop in this area so early in the season, with only 3 storms ever forming in this region in June, but with waters already at record warm temperatures, don’t expect this season to follow the script.
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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.