Yesterday’s Double Digit Losses Are Followed By Double Digit Gains Today
Energy market whiplash: yesterday’s double digit losses are followed by double digit gains today. Official news that the EU plans on completely banning Russia energy imports is taking credit for today’s rally, despite that news being a day old. Maybe the change in language describing the timing of the embargo from “by the end of 2022” to “in the next six months” sparked some additional concern this morning.
An anticipated decrease in energy inventory levels last week certainly isn’t doing anything to reign prices in this morning. The American Petroleum Institute published an across-the-board drawdown in their inventory estimates yesterday afternoon. Eyes will be on the DOE’s version of the report, scheduled to be released at its normal time this morning, to see if the API’s ~3.5 million barrel drop in oil stocks and the ~4.5 million barrel drop in refined products will be confirmed.
This month’s Federal Open Market Committee meeting is today where a 50 point interest rate hike is all-but-certain. In addition to bumping borrowing rate by twice the usual amount, more rate increases are expected in the coming months as the Fed tries to curb inflation, currently at a 40 year high. While the long term effects are uncertain, some view the rate hike as a “de-risking” event and anticipate a decrease in short-term volatility and an accompanying rally in equities in the short term.
Soybean Oil prices, and likewise biodiesel RINs, have back off from multi-year highs this week but still remain in the stratosphere as the world grapples with a shortage of edible oils. It’s a similar story with corn futures and ethanol RINs so far this week and while this might be great news for farmers, high blendstock prices aren’t doing anything to help bring down prices at the pump.
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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.