Trump Trade Twitter Tirade Spooked Markets Around Globe
Another Trump trade twitter tirade has spooked markets around the globe, with Asian stock indices down 3-7%while US and European indices are down around 2%. Energy markets were following the overnight sell-off for several hours, with refined products down more than 4 cents/gallon and oil down around $2, but have since recovered the majority of those losses.
During the overnight lows both WTI and Brent broke below their 200 Day Moving averages, and appeared poised for a technical breakdown, but have since rallied back above that layer or longer-term support. That resilience for energy contracts that were already looking like they’ve topped out for the season is notable, and perhaps a sign that the funds that have steadily been buying into contracts in 2019 aren’t giving up just yet, even though the short term technical outlook is looking more bearish by the day.
Speaking of funds, the COT reports last week showed a mixed reaction by money managers who added slightly to net length in Brent and RBOB positions while reducing WTI and ULSD positions modestly. The limited reaction to the first heavy selling in several months suggests the large speculators are willing to weather a storm or two in a longer-term bet on higher prices. The RBOB position is the only 1 of the 4 that is above its 5 year range, and is looking a bit precarious now that US refiners should be coming out of maintenance.
The relative strength for energy compared to equities and other commodities seems to be owed at least in part to Saudi Arabia announcing it would raise prices to Asian and European buyers of its oil, suggesting that the Kingdom will stick with the OPEC output cut plan. It’s worth noting that the Saudi’s lowered prices to US buyers of crude, which may be a symbolic gesture to appease the president as sales to the US have already dropped to their lowest levels in 30 years.
Baker Hughes reported an increase of 2 oil rigs put to work last week, a small rebound after the total US count reached its lowest level in a year.
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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.