Chart Support Survived A Big Wave Of Selling To Start The Week
Chart support survived a big wave of selling to start the week, and petroleum prices are now moving higher as buyers (or more likely the algorithms they’ve programmed) gain more confidence that a price breakdown is unlikely in the near future. RBOB gasoline futures are up more than 20 cents from Monday’s low trade, and back in the July trading range. ULSD prices are up 15 cents from Tuesday’s low, but need to get back above the $3.55 mark to break the descending triangle pattern that still threatens to push prices to $3 in the coming weeks.
Early (and unofficial) reports from the OPEC & Friends meeting suggest the cartel will make a modest increase of 100,000 barrels/day to its quota in September. Oil and product prices actually moved higher following those rumors as the increase is the smallest on record for the cartel, and is essentially meaningless given that actual output has lagged behind the allowed quotas for the entire year.
The API reported a build in crude stocks of 2 million barrels last week, while refined products were estimated to have small declines of less than ½ million barrels each. Keep in mind the build in oil stocks includes the ongoing drawdown of oil from the SPR, and all else being equal, would equate to a nearly 5 million barrel decline in US stocks if those barrels weren’t being released. The EIA’s weekly status report is due out at its normal time of 9:30 central.
While the shortage of refining capacity to meet fuel demand in the Western hemisphere has been well documented this year, the EIA on Tuesday published a note highlighting 9 new refinery projects slated to come online in the next 18 months, that will add nearly 3% to global refining capacity…all of which are in Asia and the Middle East, which will further shift the global flow of oil and its various products.
While backwardation remains a major theme in global energy markets, for the first time in many months 2 US regions have actually slipped into a contango price curve for distillates. Both Group 3 and Chicago ULSD prices are now trading higher for September delivery than they are for prompt barrels, which is a reflection of the lull in regional demand prior to the harvest season. This compilation of recent articles suggests you shouldn’t bet on this trend expanding to other markets.
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.