Solid Gains Posted As Trading Winds Down For Holiday
Energy and equity markets are cheering a strong jobs report this morning, posting solid gains as trading winds down for the holiday-shortened week.
The June payroll report showed another strong month for the recovery in U.S. employment with 4.8 million jobs added during the month. The headline unemployment rate dropped from 13.3 percent to 11.1 percent, while the U-6 rate dropped from 21.2 percent to 18 percent. Those figures were better than most forecasts, similar to what we saw in May’s report, suggesting the recovery on the street is much stronger than we see on the news. The big question for July will be whether or not this trend can continue now that states are having to reverse some of their reopening plans.
Spot markets will not be assessed tomorrow, and although there will be an abbreviated NYMEX trading session (you mean the rest of the world doesn’t celebrate July 4th?) there will not be settlements for those futures contracts, so most rack prices posted tonight will carry through Monday.
The latest in the political football known as the Renewable Fuel Standard: Senators from Big Oil and Big Ag states are both separately threatening to block nominations of EPA officials until the agency updates the RFS. At least they finally agree on something. Meanwhile, the EPA administrator is saying the agency is waiting for feedback from the DOE before proceeding with a plan on small refinery exemptions, and is not planning on releasing proposed RFS volumes this week. While the same tired debate plays out in Washington, ethanol prices are surging, well above pre-COVID levels now as inventories have quickly gone from record highs to their lowest in 3.5 years, as producers have not kept pace with the increase in demand.
The DOE’s weekly report showed crude oil stocks had their largest draw of the year, pulling back from record highs, as import volumes slowed and refinery runs continue to inch higher, passing the 14 million barrel/day mark for the first time since March. Normally this time of year we’d expect refinery runs north of 17 million barrels/day.
We seem to be in a pattern of two steps forward, one step back for U.S. fuel demand. Last week, diesel consumption estimates had a nice uptick, while gasoline pulled back. We should see a surge in gasoline demand heading into the holidays, particularly with automobiles now the preferred mode of transport, but total consumption is still some 20 percent below where it should be this time of year.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Energy markets are sliding lower again to start Wednesday’s trading as demand concerns and weaker stock markets around the world seem to be outweighing any supply concerns for the time being.
Rumors continue to swirl about an “imminent” response by Israel to Iran’s attacks, but so far, no news seems to be taken as good news in the hopes that further escalation can be avoided, even as tensions near the Red Sea and Strait of Hormuz continue to simmer.
Prices to lease space on Colonial’s main gasoline line continue to rally this week, trading north of 11 cents/gallon as Gulf Coast producers still struggle to find outlets for their production, despite a healthy export market. Gulf Coast CBOB is trading at discounts of around 34 cents to futures, while Gulf Coast RBOB is trading around a 16-cent discount, which gives shippers room to pay up for the linespace and still deliver into the East Coast markets at a profit.
Back to reality, or just the start of more volatility? California CARBOB basis values have dropped back to “only” 40 cent premiums to RBOB futures this week, as multiple flaring events at California refineries don’t appear to have impacted supply. The state has been an island for fuel supplies for many years as its boutique grades prevent imports from neighboring states, and now add the conversion of the P66 Rodeo refinery to renewable diesel production and the pending changes to try and cap refinery profits, and it’s easier to understand why these markets are increasingly vulnerable to supply shocks and price spikes on gasoline.
RIN prices continue to fall this week, touching 44 cents/RIN for D4 and D6 values Tuesday, their lowest level in 6 weeks and just about a nickel above a 4-year low. While the sharp drop in RIN and LCFS values has caused several biodiesel and Renewable Diesel producers to either shut down or limit production, the growth in RIN generation continues thanks to projects like the Rodeo refinery conversion, making the supply in RINs still outpace the demand set by the Renewable Fuel Standard by a wide margin.
The API reported draws in refined products, 2.5 million barrels for gasoline and 427,000 barrels for distillates, while crude oil stocks had an estimated build of more than 4 million barrels. The DOE’s weekly report is due out at its normal time this morning.
Click here to download a PDF of today's TACenergy Market Talk.
Equity Markets Have Been Pulling Back Sharply In Recent Days As Inflation And Trade Concerns Inject A Sense Of Reality Into Stocks
It’s a mixed bag for energy markets to start Tuesday’s session with gasoline prices holding small gains, while oil and diesel prices show small losses as the world anxiously debates what comes next in the conflict, we’re still hoping we don’t have to call a war in the Middle East.
An early sell-off picked up steam Monday morning with refined products down more than a nickel for a few minutes, before reports that Israel was vowing to respond to Iran’s attack seemed to encourage buyers step back in an erase most of the losses for the day.
Equity markets have been pulling back sharply in recent days as inflation and trade concerns inject a sense of reality into stocks that had been flying high earlier in the year. The correlation between gasoline and crude oil prices had been fairly strong for the past couple of months but has since weakened as the weakness in stocks hasn’t yet trickled over into the energy arena. Both asset classes are seeing a tick higher in their volatility (aka Fear) indices this week however, and when fear starts driving the trade, we often see these prices move together.
Diesel has been underperforming the rest of the energy complex for most of the year so far, and those hoping for lower diesel prices got more good news when the Dangote refinery in Nigeria began loading diesel for domestic use Monday, in the latest milestone for the giant project that will have a major influence on Atlantic basin supply. Naturally, local lawmakers are already complaining that the refinery’s prices are too high.
The EIA this morning highlighted the record amount of crude oil China imported in 2023 after reopening the country post-COVID and after completing numerous new refinery builds in the past few years. Russia accounted for the largest increase in shipments to China last year, as China is one of the few countries that doesn’t mind ignoring sanctions. Speaking of which, the US House is expected to take up a new vote this week on sanctioning Chinese imports of Iranian crude, which the EIA notes are often hidden by relabeling the crude to make it appear as if it originated in Malaysia, Oman or the UAE.
We’re just 2 weeks away from the startup of Canada’s long-awaited Transmountain pipeline expansion that will bring roughly 600,000 barrels/day of capacity to the Pacific basin. That new outlet is great news for Canadian producers long restricted by takeaway capacity, and bad news for Midcontinent refiners who have grown accustomed to the discounted Canadian grades. A Bloomberg article Monday noted that Iraq’s Basrah Heavy crude is most likely to be displaced by West Coast US refiners who can now buy much closer to home.
Click here to download a PDF of today's TACenergy Market Talk.