Another Day, Another 20 Cent Swing In Energy Prices In The Overnight Hours As The War In Ukraine Continues To Get Worse
Another day, another 20 cent swing in energy prices in the overnight hours as the war in Ukraine continues to get worse, and there’s little hope for a resolution on the horizon.
The past 4 trading days each rank in the top 11 all-time for the largest daily price swings in ULSD futures dating back to the early 1980s, and there were entire years where we didn’t see prices swing like we have the past couple of days. So, if you’re feeling a little worn out after this week’s market chaos you have good reason, and also a good reason to be thankful your biggest concern is big swings in fuel prices.
Basis markets around the country have had some big swings of their own as both the US Gulf Coast and NY Harbor are seeing multi year highs for ULSD spreads.
The phenomenon of tight coastal markets and well supplied mid-continent markets shows up well on the Diesel basis chart below as Group 3 and Chicago values are trading 25 cents below the Gulf Coast and 35 cents below NYH values as anything that can hit the water has found a strong bid to (theoretically) supplement the supplies no longer being exported from Russia. Meanwhile, the landlocked barrels are dropping to offset the spike in cash spreads, as Midwest supplies are ample and don’t command the extreme backwardation we’re seeing elsewhere.
The February jobs report showed strong growth in the US, with an estimated 678,000 increase in payrolls for the month, and the estimates for January and December were both revised higher. The headline unemployment rate dropped to 3.8%, which is getting close to where it was prior to COVID hitting 2 years ago. The U-6 (aka real) unemployment rate actually ticked slightly higher from 7.1 to 7.2%.
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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.