Ceiling On Energy Prices Remains Intact
The ceiling on energy prices is intact for now and futures are slipping after failing to break through to the upside on Wednesday. A pair of negative monthly reports from OPEC and the IEA are getting credit for the pullback, while technicians will tell you this type of selling is normal when chart resistance repels a rally. The drop in prices after a dramatic November rally has been minor (and as this is being written WTI has moved back into positive territory) suggesting we are likely to see another test of that price ceiling again in the near future.
OPEC’s monthly report reduced its demand outlook as consumption in the America’s was below expectations and new COVID-containment measures in Europe are reducing transportation. In addition to the worsening demand outlook, the OPEC report showed the cartel’s output increased in October as Libyan production (which is exempt from the output cut agreement) started to come back online. What could be worse is that Libyan output increased to 454,000 barrels/day in October, and is expected to reach one million barrels/day in November, putting more pressure on the market.
There has been concern that the regime change in the U.S. may mean more Iranian oil comes back to the world market just in time for no one to need it, further adding to the bleak fundamental outlook. Not so fast, according to a new IAEA report, Iran’s enriched uranium stockpile is 12 times the agreed upon amount, making the removal of sanctions much more complicated, and making it less likely that the world will smile upon a new deal this year.
The IEA’s monthly oil report shows a similar pattern as OPEC with demand expectations slipping while supply increases. The IEA’s report also threw some cold water on the vaccine optimism that swept global markets earlier in the week suggesting there will not be a significant impact in the first half of 2021. The count of global refinery permanent shutdowns stands at 1.7 million barrels/day, but “Significant structural overcapacity” remains with approximately 20 million barrels/day of temporarily idled distillation capacity worldwide, suggesting more closures are coming.
Right on cue, Scotland’s lone refinery announced that two units idled due to the drop in demand this year will be shuttered permanently.
Eta made a second landfall in Florida north of Tampa this morning, as a tropical storm with sustained winds around 50 mph and is moving across the state, heading for Jacksonville this afternoon before reemerging in the Atlantic. The storm’s path and relative lack of strength means it should not disrupt port traffic for long. The tropical wave churning in the Caribbean now has 90% odds of being named, and we should know early next week if it will be yet another Gulf Coast threat.
Click here to download a PDF of today's TACenergy Market Talk.
News & Views
View All
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.