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It’s A Quiet Start To Trading As The 2nd Quarter Of 2023 Winds Down
It’s a quiet start to trading as the 2nd quarter of 2023 winds down, with many already looking ahead to a long holiday weekend. While most energy contracts are poised to finish the month higher, they’re still lower than they were at the end of Q1, with plenty of work to be done if the bulls are going to regain control. Diesel futures are down $1.50/gallon from this time last year, while gasoline futures are down more than $1 and the charts continue to send mixed signals for what’s ahead.
Almost all trading has shifted away from the expiring July RBOB and ULSD contracts, so look to the August figures for direction today if your market hasn’t already rolled.
See the holiday calendar below for a recap of who is and isn’t open to start next week. Monday will be particularly confusing for rack pricing as the Nymex and OPIS both have normal publishing plans but Argus and Platts will both be closed.
The East Coast continues to show signs that physical supply is tightening up after a relatively relaxed spring. Colonial line 1 premiums jumped back into positive territory as gasoline values in NYH relative to the Gulf Coast have gained 10 cents/gallon over the past 10 days. Distillates are seeing strength as well with NYH spots now going for nearly 20 cents/gallon more than the Chicago market and 7 cents above the Gulf Coast.
The West Coast is also seeing strength, with gasoline and diesel basis in California seeing healthy gains this week following multiple refinery upsets. The strength is primarily focused in the LA area, with CARB diesel premiums hitting their highest levels since February yesterday.
The 4th largest refinery in the US continues to struggle, reporting 2 more-unit upsets to regulators Thursday, just 2 days after a chemical leak sparked a shelter in place and less than 2 months after a deadly fire. Gulf Coast basis markets continue to shrug off this news with basis values not making any perceived moves due to those upsets while regional inventories remain at average levels even though exports remain robust.
Ethanol RINs (D6) have recovered the losses they took after the EPA announced it was lowering its de-facto ethanol blending requirements for the next two years, even though outright ethanol prices have dropped by more than 20 cents/gallon in the past 3 days, which are following a sharp drop off in corn and other grain prices as drought fears across the Midwest seem to be coming to an end. D4 RINs are now trading essentially flat to D6 RINs, a far cry from the 20 cent premiums they carried for much of last year, thanks to the rapid influx of new renewable diesel production. Of course, even though the RIN values are the same, the total value for RD production is much higher as each gallon produced generates 1.7 RINs, vs 1.5 for biodiesel and 1 for ethanol.
The EPA announced new rules to prevent PFAS chemicals to enter the marketplace. That new framework could be another nail in the coffin of the beleaguered Suncor refinery near Denver, as a new report notes a spike in PFAS from that facility in May, adding to the comedy of errors experienced by that company over the past year.
Prices Are Taking A Breather This Morning As Prices Continue To Slog Through Their Sideways Summer Trading
Gasoline prices led the energy complex higher Wednesday as we approach the holiday weekend with record setting travel volumes expected in the US. Prices are taking a breather this morning as prices continue to slog through their sideways summer trading pattern with no clear direction on the charts, and plenty of fundamental discord to keep traders guessing.
The US commerce department revised its Q1 GDP figures up to 2% growth from earlier estimates of 1.3%, a major correction for that report, primarily reflecting stronger export activity (thanks oil) and consumer spending.
While a 10-million-barrel drop in oil inventories grabbed the headlines yesterday, perhaps the most bullish numbers from the DOE’s weekly report was strong export figures that show crude oil shipments out of the US at their 2nd highest level ever, and diesel shipments at their highest level of the year. Propane and propylene shipments also surged to a new record high, which certainly suggests that there are plenty of international buyers for US petroleum products, despite so many warnings of a looming recession.
While the SPR continues to drop to multi-decade low levels, despite the DOE’s proud announcements of purchases to refill the reserve, the Cushing OK hub has stockpiles steadily growing and reaching a 2-year high last week.
Average retail diesel prices are down almost $2/gallon from year-ago levels as the supply crunch so feared over the winter never materialized. PADD 1 diesel stocks however have dropped below year-ago levels this week for the first time since January, despite another very weak demand estimate last week that puts total US diesel consumption below the COVID summer of 2020 levels. Gulf Coast diesel supplies are ample however, holding near their 5-month average, which is putting downward pressure on forward basis values.
Today’s interesting read: Are Indian refiners reaching the limits of their Russian oil binge?
Week 26 - US DOE Inventory Recap
Its A Mixed Bag With RBOB Trading Up .4%
Equity markets enjoyed some positive sentiment yesterday after it was announced that US consumer confidence increased in June to a new 18 month high. This evidence of US economic resilience had an opposite impact on energy futures, which sold off Tuesday. It’s a mixed bag this morning with RBOB trading up around .4% while the oils (crude and heating) exchange hands ~.6% lower to start the day.
The American Petroleum Institute published its weekly energy inventory report yesterday afternoon, showing a drawdown in crude and gasoline inventories of 2.4 and 2.9 million barrels, respectively. ULSD stockpiles built down marginally, adding 800k barrels. The Department of Energy’s official report will be published at its regular time this morning (9:30am Central).
Marathon’s Galveston Bay refinery experienced a sulfur recovery unit failure yesterday which resulted in a partial shelter-in-place order since the SRU facilitates the containment of noxious emissions caused by the refinery process. The issue with the unit has since been resolved and all of the plant’s personnel have been accounted for. This episode comes a month after a fire broke out at the same plant, killing one and injuring another employee.
The remnants of Tropical Storm Cindy won’t be organizing in the next week but a sister storm has spawned just to its East with a 20% chance of development in the next 7 days. As of now the storm that would be named Don is expected to stay out to sea.
Record-Breaking Heat Bakes The South/ System Outages After Cyber-Attack
Energy futures drift lower to start Tuesday’s trading session, lacking any compelling headlines to shift sentiment one way or another so far this morning. The prompt month HO contract, which expires on Friday along with its gasoline counterpart, is the only one of the ‘big three’ benchmarks not trading lower this morning. The American crude oil benchmark is approaching the lower boundary of the trading range its adhered to for the past couple months, and may test the $67 price floor in short order.
The remnants of Tropical Storm Cindy may reorganize in the coming week but current forecasts have it staying out at sea, away from US energy infrastructure.
While its currently all quiet on the Atlantic front, severe weather is still making headlines as thunderstorms continue thrashing the Midwest and record-breaking heat bakes the South. Valero’s Meraux and Shell’s Norco refinery both experienced power outages in the last 72 hours as extreme heat tests power grids all along the Gulf Coast. BP’s Whiting refinery is also recovering from a disruption after storms rolled through the area, knocking out power to several units and causing an unplanned flaring.
Suncor Energy reported various system outages after experiencing a cyber attack over the weekend. The breadth and depth of the damage is unclear but the Canadian refiner assures none of its counterparties’ or employees’ data is at risk. It’s yet to be seen what affect this might have on the refined product markets in Colorado, where Suncor operates the state’s lone refinery. As of right now it seems unlikely, we’ll see the same price blowout experienced back in Q1’23 when the plant was knocked offline due to winter storms.
Of note: it’s been 2 years since hackers pressed pause on the Colonial Pipeline, stopping refined product shipments on the US’s main supply artery. The attack incited panic buying around the nation as some cities along the pipeline’s path reported gas station outages.
Energy Futures Are Drifting Higher To Start This Week’s Trading With The HO Contract Leading The Way Higher
Energy futures are drifting higher to start this week’s trading with the HO contract leading the way higher, tacking on 3 cents per gallon (1.2%) so far this morning. Gasoline and crude oil futures are trading higher in sympathy, each seeing a ~.6% bump.
The Wagner Group, the Russian paramilitary organization that has acted as the Kremlin’s spearhead in many fronts of the Ukrainian invasion, staged a casual coup over the weekend. The mercenary group took over the southern military headquarters in Rostov-on-Don and was about 120 miles from the Moscow before its leader, Yevgeny Prigozhin, cut a deal that saw him to Belarus and his troops back to Ukraine. While the mutiny was staged and peaceably quelled within a day, the overtones of chaos and instability are taking credit for today’s bullish sentiment in energy markets.
Tropical Storm Cindy disorganized over the weekend and is now referred to merely as Disturbance 1 by the National Hurricane Center. The system looked as if it might cause some headaches for marine traffic along the Eastern seaboard late last week, but updated forecasts have it sticking out to sea with a 30% chance of reorganizing over the next week.
Last week’s volatile price action saw an across-the-board exit in positions held by energy speculators. Open interest in the ‘big three’ American petroleum benchmarks held by money managers declined last week while new positions in Europe’s Brent and Gasoil contracts ticked up by about 2%.
Baker Hughes reported the shuttering of 6 crude production plants last week, dropping the total operation oil rigs in the US down to 602.