Volatile Week Of Trading
A volatile week of trading was expected as the world anxiously awaits the U.S. election, and the early results have not disappointed.
WTI just turned positive after being down $2/barrel overnight, and refined products are trading a nickel above the lows set in the first 10 minutes of Sunday night’s session. Stronger equity markets, credited to a Chinese manufacturing report reaching a 10 year high, seem to be helping prices look past the risk of more COVID lockdowns for now.
The 5% bounce sets a good short term layer of technical support at the overnight lows $33.64 for WTI, $.97 for RBOB and $1.02 for ULSD. That support may be tested again as longer term charts continue to favor another move lower, and likely a longer-lasting move below $1 for refined products.
Marathon reported a $1 billion loss for the third quarter this morning, with its refining and marketing segment losing more than $1.5 billion (compared to earnings of nearly $1 billion a year ago) which was partially offset by strong earnings in its mid-stream operations. The results also included $433 million in impairment expenses primarily due to “repositioning the Martinez refinery” and $348 million in restructuring expenses related to idling two refineries and their workforce reduction. The sale of Speedway is still on track for Q1 2021, and renewable diesel production is starting at its Dickinson, ND facility.
Baker Hughes reported 10 more oil rigs were put to work last week, a sixth consecutive weekly gain. Nine rigs were added in the Permian basin, and one was added in the Eagle Ford. With the recent selloff in prices, it seems like we might see the recovery stall out over the next month or so as operations catch up with prices.
Money managers continue to seem unenthusiastic about energy contracts. The large-speculative category of trader made small reductions in the length held in WTI and RBOB positions last week, made a small increase in the short position in ULSD, and a small increase in Brent length. Open Interest in Brent dropped to its lowest in two years.
Hurricane Eta formed in the Caribbean over the weekend, continuing 2020’s record setting storm streak. This hurricane is not a threat to the U.S. however as it is expected to make landfall in Nicaragua Tuesday.
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.