Tropical Storm Philippe Looks Set To Hit The Coast Of Maine Sunday
Energy prices are trying to find a floor this morning after the worst weekly selloff in the past 6 months. ULSD futures have seen the most dramatic moves this week, dropping more than 50 cents from a high of $3.3464 Monday to a low of $2.8336 overnight before bouncing nearly a dime off those lows this morning. The big question now is whether today’s rally is just a dead cat bounce, or if the liquidation is over. Weekly charts suggest there’s still a good chance we could see diesel prices make a move to the July lows around $2.50 if we don’t see this recovery take back the $3 mark.
It’s widely expected that this week’s pullback included a fair amount of hedge fund liquidation (aka clowns exiting the Volkswagen) after 3 months of money managers adding to their bets on higher oil and diesel prices. Given that we saw back to back 15 cent drops in ULSD after the CFTC data was compiled Tuesday however, we won’t know the full effect of hedge fund liquidations until next Friday.
How’d that work out for you? Russia has already lifted its export restrictions on diesel, allowing 50% of domestically produced fuels to be sent overseas. Given that prices are down roughly 60 cents/gallon since that announcement a few weeks ago, it sure doesn’t seem like the plan had its intended effect.
Good news is bad news: The overnight rally hit a bit of a wall after the September jobs report showed strong employment growth that far outpaced most predictions. September payrolls were estimated to increase by 336,000 last month, while the July and August estimates were revised higher by 119,000 jobs. The official unemployment rate held steady at 3.8%, while the U-6 rate dipped to 7%. Stock futures sold off following the report, and refined products pulled back a couple of cents briefly, as this report seems to suggest the FED will have more ammunition to support its higher for longer interest rate battle plan.
Trouble in Corpus Christi: All 3 major refiners in the area have reported upsets over the past week. The upsets started with a power outage at Citgo’s East plant then yesterday FHR reported a leak in a Cumene unit with unknown impacts on operations, and then Valero reported a fire in a hydro treating unit at its facility overnight. It’s still unclear what impacts any of the 3 events are having on operations, but allocations along the Austin, San Antonio and DFW corridor supplied from those facilities are a good possibility.
Tropical Storm Philippe looks set to hit the coast of Maine Sunday, with the terminal and port in Searsport looking like they might take a direct hit. The good news is this storm is only expected to have sustained winds in the 40-50mph range, and should not be a major disruptor although local power outages and flooding are certainly possible. The busier ports to the south like Portland and Boston “should” be unaffected beyond some temporary vessel restrictions as the storm passes. Perhaps the biggest impact will be another slow demand weekend for the region that’s seen several weeks of heavy rain hamper the annual migration of leaf peepers.
Next up the NHC is tracking another system off the coast of Africa with 50% odds of being named next week, but the location of that development suggests it would be a fish storm that won’t threaten the US.
Big Deal. Exxon is reportedly buying Pioneer Resources in a deal valued around $60 billion, which would be its biggest acquisition since buying Mobil 25 years ago. The acquisition is the latest sign that the oil majors have money to spend, see long term profits in the Permian, but are still reluctant to push new drilling rigs.
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View All“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week
“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year.
Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports.
Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.
Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.
Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums.
Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.
The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.
Click here to download a PDF of today's TACenergy Market Talk.
No Official Word From OPEC Yet On Their Output Agreement For Next Year
Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.
There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move.
We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.
It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.
Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.
Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.
The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver.
The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.
Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.
More refineries ready to change hands next year? With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.