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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Week 47 - US DOE Inventory Recap
Energy Prices Were Seeing Some Modest Selling Overnight Following A Cease-Fire Agreement Between Israel And Hamas
Energy prices were seeing some modest selling overnight following a cease-fire agreement between Israel and Hamas, and the selling picked up steam around 7:15am following reports that OPEC is delaying its weekend meeting, which suggests the cartel members may be having a hard time reaching a consensus. Refined products were down 3-4 cents overnight, but those losses increased to 7-cents following the OPEC delay, wiping out a large portion of the gains we’ve seen the past few days.
The pullback has several short-term technical indicators flashing sell signals, just when it looked like prices might be ready to stage a breakout from the 3-month down trend. The good news for consumers is the pullback in prices since the summer means average retail prices across the US are down more than 10% from a year ago, right in time for one of the busiest travel days ever in the US.
Prices for gasoline space on Colonial have started to ease this week, dropping from 18-cents to 12, following promising reports of successful restart efforts at the Trainer PA refinery that had been shut down for extended maintenance. Diesel values continue to hold near their highest levels in a year above 14 cents/gallon as Gulf Coast refiners are seeing barrels back up, and shipping options are limited due to a variety of factors such as the shutdown of Kuwait’s huge refinery and chaos in the Panama Canal that is delaying resupply efforts in New York. Of course, if those gulf coast refiners weren’t limited by the Jones Act, the logistics would be much simpler.
Now would be the perfect time for either the Dangote refinery in Nigeria or the Dos Bocas refinery in Mexico to begin their long-overdue production and fill the void in the Atlantic basin, but despite so many promises that startup is imminent, neither facility appears to be selling any on-spec products yet.
Reminder that futures will trade in an abbreviated session tomorrow but will not settle. Friday will be another short trading session for futures, with a settlement posting. None of the spot market assessors will be open either day so many contract prices will hold through Monday, while rack prices may change depending on what the futures markets do while everyone is gone.
Energy Futures Are Seeing A Modest Pullback This Morning After 2 Strong Days Of Gains
Energy futures are seeing a modest pullback this morning after 2 strong days of gains. The buying spree seemed to stall out Monday afternoon, and left ULSD and RBOB futures hovering near their weekly trend-lines, but so far lacking the conviction to make a break-out to the upside and put an end to the bearish patterns that have been in place since the summer.
Many headlines are suggesting the reason for the recent recovery is expectations that OPEC and Friends will extend their output cuts at their meeting on Sunday. The IEA this morning suggested that even if the cartel extends cuts, the world is likely to still see a supply surplus next year.
More than a million gallons of crude oil appears to have leaked from an off-shore oil pipeline roughly 25 miles off the Louisiana coast before operators shut down the pipe last Friday. So far the cause of the leak, and the exact amount spilled, is unknown, but at least the oil slick is not moving towards shore at this point. The pipeline in question moves roughly 80mb/day of crude oil, and given the variety of options in the region, this shutdown should not cause major supply disruptions for refiners nearby.
Meanwhile, a cargo ship was hijacked in the Red Sea, by Yemen’s Houthi rebel group, who said they took the ship due to connections to Israel, and would continue targeting ships in international waters until the war in Gaza ends. Despite the links between Iran, Hamas and the Houthi’s, and previous attacks on oil tankers by Iranian forces, so far there have been no apparent concerns that oil supplies may be impacted by these events. The US already has several naval ships in the area to protect the shipping routes and has downed several Houthi missiles since the war broke out, so it seems like the market is satisfied they can keep things from getting too out of hand.
That route plays a key role in European fuel supplies from the Middle East, which have seen a sharp increase since the Ukrainian war, and the startup of Kuwait’s new Al Zour refinery last year. That refinery has run into trouble in the past month however, headlines regarding its progress seem to be having some influence on the daily moves in ULSD futures. While the status of the refinery’s current operations are unclear, a weekend note from an analyst urging that the state oil firm take over control of the facility suggests a lack of confidence in its current ability to remain a stable supplier.
Chinese exports to Europe have dropped this year after setting records last winter, so it seems as though there’s some flex capacity available on the global markets, IF the government quotas allow for it to be sent overseas.
Opposite day: After a weekend fire at the Martinez Renewable Diesel refinery, diesel basis values in the San Francisco market plunged more than 20 cents/gallon Monday, far outpacing a recent slump in the neighboring LA spot market.
That’s not the only RD producer facing challenges these days. A month after a judge halted construction on the P66 Rodeo refinery conversion project (which may ironically force traditional refining operations to continue for longer than planned) a Southern California facility looks like it may be running into a legal wall that could halt its expansion plans. Add these legal challenges to the big drop in credit values and Panama Canal issues and the outlook for rapid growth in the renewables arena is looking pretty rough near term.
ULSD And RBOB Contracts Saw A 2nd Week Of Increases After Nearly 2 Months Of Selling
The recovery bounce continues for energy prices this morning with refined products leading the way with gains approaching a nickel just before 8am. RBOB gasoline futures are leading the way and are up more than 14 cents after hitting their lows of the year last Thursday. The bearish trend lines on the weekly chart are coming under pressure early but are holding their resistance for now, and will likely prove pivotal in the holiday-shortened trading week.
Speculators continued to liquidate crude oil positions last week, but ULSD and RBOB contracts saw a 2nd week of increases after nearly 2 months of selling. The exception to the product buying was in the European Gasoil contract which saw a large decline in long positions, suggesting that the big funds have thrown in the towel on their bets of a cold winter driving up European distillate prices.
Baker Hughes reported an increase of 6 oil rigs drilling in the US last week, the largest weekly increase since February. Don’t get too excited about a resurgence in drilling activity just yet however as the count of natural gas rigs fell by 4, keeping the total count of rigs just 2 above a 20-month low. The Dallas FED’s Texas Employment forecast published Friday also shows a slowdown in well permits in October, suggesting that producers weren’t rushing when prices were close to $90/barrel and will almost certainly take their time after prices dropped to $75.
Black Friday Beware: Thanksgiving is the only set holiday annually where spot markets won’t publish for 2 straight days. While the cash markets (and most offices will be closed) futures will continue to trade in abbreviated sessions both Thursday and Friday, with a settlement Friday. It’s worth noting that we’ve seen double digit sell-offs in refined product futures in each of the past two years between Wednesday and Monday’s settlements, and there’s typically a huge hangover effect on demand following the pre-holiday run-up.
The Marathon Refinery in Texas City which holds the most TCEQ frequent flier miles with 37 reported upsets in the past year was having a good run, making it nearly a month before reporting 2 more process hiccups in 8 days. Neither event seems major, and based on the continued selloff in USGC basis values, no-one is too concerned about supply shortages. There have been a handful of other reported upsets in the past week, but several seem to be involving unit startups after the busy fall maintenance season, suggesting more barrels are coming back online during these flaring events than being taken off.
Meanwhile, Marathon’s Martinez CA refinery reminded us that renewable production can be dangerous too after a weekend fire sent one person to the hospital. It’s unclear what impact the fire may have on the sites RD production, but the air-quality alerts were lifted overnight.