Stock Markets Poised For Another Weekly Loss
Energy prices are stumbling out of the gate to start another trading session without much going on to drive the action, keeping price movements to a minimum. U.S. stock markets are poised for a fourth straight weekly loss, which has added to the downward pressure on energy prices (at least in terms of a negative sentiment about demand growth). That said, equity indices are looking much weaker on a technical basis than energy futures, which still need to break the low end of the summer trading range before we can call for the next bear market.
The forward curve charts below show petroleum prices have dropped in almost equal increments throughout the next three years, keeping the contango curve in place as expectations for a gradual recovery in global demand haven’t changed much during the past month.
While petroleum prices are stagnating, there’s been more exciting action in the renewable space this week. Prices for ethanol, biodiesel and their RINs all have dropped sharply along with crop prices as the U.S. harvest is looking very COVID resistant. Export demand remains questionable.
The Dallas Fed’s Energy survey showed that activity in the sector has continued to contract in Q3, albeit at a much slower pace than the previous quarters. The majority of responding companies anticipate that drilling activity won’t pick up substantially until WTI gets north of the $50 mark, a less optimistic view than in previous months, and also a reflection of the overhand of DUC wells in the region.
A WSJ article this morning estimates that California will need to expand its electric grid by 25% in the next 15 years to power the fleet of electric cars the governor has been encouraging. For a state already unable to keep up with power demand, the task seems to be out of reach. That said, the EIA this morning highlighted the dramatic change in the country’s power production over the past decade as the U.S. moves away from Coal-fired power. The FERC’s recent move allows end users access to wholesale electricity markets, diversifying the grid, as electric vehicles will be able to send their unused power back into the grid.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
Click here to download a PDF of today's TACenergy Market Talk.
WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.