Shift In Storm’s Path Reduces Threat Of Widespread Supply Disruption

Market TalkThursday, Aug 26 2021
Pivotal Week For Price Action

RBOB gasoline futures rallied almost 30 cents in 3 days to start the week, first finding a bid when chart support at the $2 mark held, building momentum as equities rallied, then taking flight Wednesday as the potential for a major hurricane to strike the heart of refining country became a reality. We’re seeing a modest pullback this morning as a shift east in the Storm’s path reduces the threat of widespread supply disruption, but the market will no doubt stay on edge for the rest of the week given the severe nature of this threat.

The national hurricane center is giving 90% odds that the storm in the Caribbean (likely to be named Ida) will form in the next 2 days. Conditions are ripe for rapid development over the warm waters of the Caribbean and then the Gulf of Mexico, with some models suggesting this will become a category 3 hurricane as it heads towards the US Gulf Coast early next week. 

The latest models have shifted the projected path east to Louisiana, but the error cone is still high with the entire Texas coast still possibly in range depending on how steering currents shape up this weekend. To try and put it another way, it looks like the US refining zone is about to take a big punch, the only question is if it will be to the head, the midsection, or will it deflect harmlessly off a shoulder?

Worst case scenario is a strike in the Houston area that can disrupt not only numerous refineries, but also multiple pipeline origin points, the country’s busiest shipping lanes, not to mention corporate headquarters. The 2nd worst spot is a strike on the Beaumont/Pt Arthur area due to its concentration of large refineries and pipeline origins, and then the potential impact to supplies in the rest of the country diminish as the forecast moves east. This morning’s pullback in futures seems to be reflective of the storm’s projected shift east, although the overall supply/demand balance is tighter than it’s been in years, so we won’t have a buffer to offset lost production like we did during last year’s hurricane parade, so don’t be surprised to see prices move with each new data release from the NHC this week. 

One other potential fallout from the storm: RIN Prices saw a big jump Wednesday, and so far there’s not a story out of Washington DC to blame it on. Since Gulf Coast refiners export roughly 20% of their production, and those export flows are likely to be disrupted from this storm, it’s possible those refiners were forced to cover RINs for product that would otherwise go overseas and not incur an RFS obligation. There’s also the potential that the East Coast will need more gasoline imports if Gulf Coast production is curtailed, another bullish factor for RINs, and then again it’s just as likely someone is betting last week’s rumors on lower RFS targets that sent prices tumbling may not pan out. 

WTI and ULSD futures lagged the spike in RBOB, which is common any time there’s a disruption since the lines of cars around the street are filling up gasoline, not diesel or crude oil.  ULSD did manage to erase the full amount of its 7 day selloff, which leaves the door open for a push towards the year’s highs around $2.20. One other factor spurring extra volatility in the RBOB contracts is that the prompt September contract (which expires Tuesday) is the last summer-grade spec of the year.  Most Gulf Coast, West Coast and Chicago-area physical trades are already transitioned to the October futures reference, so a lack of liquidity in September could make that U/V spread even more dangerous than normal.       

Charts from the DOE weekly report are included in the link below. Note how much lower inventory levels are compared to this time last year, and you’ll better understand why this storm has the market on edge whereas we largely shrugged off 6 landfalls in 2020. 

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the DOE weekly report.

Market Update 8.26.21

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

Click here to download a PDF of today's TACenergy Market Talk.