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 TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  


Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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