Another Day Of Crude Up And Products Down
It’s another day of crude up and products down as renewable fuel credits continue to be the big story driving the price action for gasoline and diesel.
The RIN collapse has picked up speed, with D6 (ethanol) values dropping from $1.99 last Thursday to $1.25 this morning, already trading 20 cents lower from where they left off yesterday afternoon. D4s haven’t fallen quite as hard, with the spread between D4 & D6 expanding during the collapse, but they’ve still wiped out 6 weeks of gains in less than 4 days. The sellers are back out this morning, with offers already 7 cents below where they left off yesterday, which is adding to the downward pressure on refined product prices. If prices hold below $1.30, the charts suggest the next stop may not come until prices reach the $1 area, which may sound extreme, but then again that’s where prices were less than 4 months ago.
A new credit bubble brewing? While the latest RIN bubble has popped, values for California Carbon Allowances (CCA) have gone parabolic recently, even as their counterpart LCFS credits have fallen. The CFTC’s report may offer the best explanation with a surge in long positions held by money managers, in what appears to be hedge funds trying to cash in on the carbon craze. With a race to produce new credit generating fuels ranging from traditional biofuels, to Renewable diesel, biogas, and numerous carbon capture projects, those funds may end up heading for the exits and causing those values to crash.
Tropical storm Bill has come and gone, but the system churning in the Gulf of Mexico is now given 90% odds of developing over the next 5 days and appears to be heading towards the heart of refining country. It may be too early in the season, and the waters not yet warm enough, for this to become a major threat, but then again the pattern the past few years has been for storms to exceed early intensity forecasts so we’ll need to watch this one closely through the weekend.
The API reported a large crude draw 8.5 million barrels, while products built by 2.8 million barrels for gasoline and 1.9 for distillates. The DOE’s weekly report is due out at its normal time this morning. After last week’s report showed large declines in implied demand estimates (which are running counter to anecdotal evidence of retail sales) it seems likely we could see a bounce back in those consumption estimates this week.
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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.