A Day Of Chaos In Washington
After a day of chaos in Washington, U.S. markets are starting out in quiet fashion to start Thursday’s session. Energy futures reached new 10-month highs overnight, and seem to still have room to run higher from a technical perspective, while current fundamentals are throwing a giant red flag to challenge this rally.
Wednesday morning we learned about a threat to attack the U.S. Capitol by Iranian factions, Wednesday afternoon saw a much different attack on the building. While people all over the world reacted to the shocking videos from Washington, markets seemed to largely ignore story, and continued on their way overnight as if nothing had happened.
The Senate looks to have been flipped as Democrats have taken both Senate seats in the runoff election, which should mean more new legislation in 2021. Economic stimulus and climate change policies appear to be at the top of the list for those new laws, which could well be bullish for energy prices near term, and bearish for the energy industry long term.
Futures markets seemed to choose to look at the big drawdown in crude oil stocks last week (which can be largely explained by year-end tax avoidance efforts holding crude offshore) and ignored the large builds in refined product inventories driven by one of the largest weekly demand drops on record. It’s not unusual for the first week of January to be the worst week of the year for consumption due to the holidays shutting down many businesses, and with COVID shutting down much more that decline is not too surprising, the question is whether or not we’ll see a sharp recovery in the next two weeks.
As expected, the RIN market reacted most dramatically to the senate election results with both bio and ethanol RINs reaching new three-year highs in the early morning, but then trading dried up in the afternoon. We saw a similarly wild trading pattern after the last presidential election with prices soaring north of $1/RIN, only to drop by 70% in the next few months. It seems unlikely we’ll see a similar move this time given the polar opposite stances on renewables between the Presidents, but with the mandated market for RINs, nothing is certain.
Click here to download a PDF of today's TACenergy Market Talk.
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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.