WTI Settled Higher For An 8th Consecutive Session Before Pulling Back Slightly This Morning
Energy markets survived a heavy wave of selling Wednesday morning with RBOB and WTI futures turning early losses into afternoon gains, while ULSD futures bounced more than 6 cents/gallon off of their morning lows.
WTI settled higher for an 8th consecutive session before pulling back slightly this morning. That relative strength in crude oil and pullback in products has put downward pressure on refining margins, although the forward curve charts below suggest a rosy outlook in the years ahead for those that weathered the COVID and ESG storms over the past few years as the global refinery network remains limited in its capacity.
The API reported draws in gasoline and crude oil inventories of more than 5-million barrels each last week, while distillates saw a small increase of around 300,000 barrels. The EIA’s weekly report is due out at 10am central this AM. There will be some noise in oil production due to precautionary shutdowns due to Idalia’s movement through the Gulf of Mexico last week, but otherwise that storm seems to have had little impact on energy supplies.
Hurricane Lee is rapidly intensifying and is expected to reach category 4 status tomorrow. Most models continue to show Lee staying offshore as it moves north along the East Coast, but a few projections show that a landfall is still possible anywhere from the outer banks of North Carolina to New England. Even if the storm doesn’t hit land, it is still likely to roil shipping traffic, particularly in and around New York harbor, just as the industry is racing to complete the fall RVP transition.
A Reuters report Wednesday suggests the White House will delay a ruling on how to handle SAF made from ethanol until December, as the administration wrestles with the troubling fact that the intended carbon reduction of fuel made by clearing more land to plant corn simply doesn’t exist. RIN prices continue to move lower this week, touching fresh 18-month lows Wednesday as the rapid influx of Renewable Diesel production adds more physical and RIN supply to the market.
Exxon’s Beaumont refinery reported a process upset Wednesday at an FCC unit. The issue lasted approximately 8 hours but impacts on production remain unclear. Delek’s Big Spring refinery reported another issue, this one due to storms, after disruptions at that plant were part of the reason the EPA granted an RVP waiver to El Paso to try and avoid widespread gasoline shortages of their boutique 7lb RVP blend.
Mexico’s new Dos Bocas refinery has reportedly begun producing some refined products, nearly a year after its grand opening. The Mexican president insists that the facility will produce nearly 300,000 barrels/day of fuels by year end, even though several earlier claim of similar output levels proved false. In an unrelated story, 11,000 runners were disqualified from the Mexico City marathon for cheating.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.