Wild Week For Energy Markets

Market TalkThursday, Sep 19 2019
Quiet Start To End A Wild Week

May you live in interesting times”.

It’s been a wild week for energy markets, and a 5 cent rally to start Thursday’s action is keeping the volatility in full force as a flurry of interesting headlines are stirring markets all over the globe.

Reports that the Saudis are relying on oil imports to meet their customers’ demands were getting credit for the early buying, as those stories suggest the kingdom’s boasts about restoring production may have been more hat than cattle.

Just in the past few minutes reports are circling that Exxon may be forced to shut its Beaumont TX refinery – the 8th largest plant in the US – due to flooding caused by Tropical Storm Imelda. That news took the early morning gains from 3 cents to more than a nickel for refined products. With reports of 2 feet of rain in the Beaumont area, flooding is a serious concern for 3 other large refineries, with that immediate area accounting for 9% of the total US refining capacity. Officially there is no confirmation (yet) of any shutdowns, and no filings of emissions have been made to the TCEQ.

As we begin to move past the peak of hurricane season, there are 3 named storms and 3 more potential systems currently in the Atlantic basin. TS Jerry is expected to become a hurricane tomorrow, but most models continue to keep it out to sea along with Humberto. The other 3 systems are all given low odds of development.

The FOMC did announce a 2nd straight interest rate cut Wednesday, but equities reacted negatively to the news. Reports that the fed was forced to inject funds into the overnight repurchase market for a 2nd day (the first time since the financial crisis they’ve had to do this) has investors on edge despite the accommodative monetary policy as free flows of credit are a lynchpin to the economy.

The most notable data point from the DOE report Wednesday was a decline of 788mb/day of refinery output as fall maintenance appears to be in full swing. There were numerous reports this year that fall maintenance would be slower than normal as refiners moved work up earlier this year when margins were bad, and in anticipation of IMO changes at year end, so the big drop – while consistent seasonally – seemed to catch some off-guard.

While most eyes have been on oil markets this week, RIN values have hit multi-month highs on reports that the White House may have brokered a deal to reallocate some of the gallons waived for small refiners under the RFS.

Click here to download a PDF of today's charts.

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

Click here to download a PDF of today's TACenergy Market Talk.