Early Recovery Bounce Takes Place
Energy prices continue to search for a bottom this morning, with an early recovery bounce taking place after Brent crude reached one-year lows during Monday’s sell-off. The ripple effects of the coronavirus quarantine continues to dominate the headlines, keeping fear in the driver’s seat for energy commodities, even while most equity markets seem to have moved past the fear of contagion.
A Bloomberg note helps explain how the reaction to the coronavirus is complicating shipping logistics in addition to hurting demand for fuel and other commodities, which seems to be driving the recent disconnect between energy and equity markets that had been attached at the hip for large periods of time last year.
RBOB outperformed the rest of the complex for a second straight day during Monday’s session, following reports that the Bayway NJ refinery may be forced to keep its damaged FCC unit offline for the entire month. NYH gasoline basis values also rallied for a second day, but were outpaced by a stronger rally on the west coast where yet another refinery upset sent cash prices in LA and the Bay Area higher even while futures were dropping on the day.
It’s data deluge week with the EIA, IEA and OPEC all scheduled to publish their monthly market reports over the next three days. The EIA’s STEO will be out later this morning, then OPEC’s report tomorrow and the IEA’s Thursday. Expect demand estimates to be cut across the board as analysts try to predict the fallout of China’s economic slowdown.
The EIA took a look at fuel-switching capabilities in the U.S. electric grid this morning, noting that 13 percent of capacity can change between natural gas and fuel-oil feed stocks, which explains why there’s a spike in diesel demand during severe cold snaps. Unfortunately for producers of both natural gas and diesel fuel, there’s been minimal demand for either fuel this year as the world is going through the warmest winter on record, which has contributed to prices for both Nat Gas and ULSD reaching multi-year lows.
The IEA published a special report on the battle against climate change this morning, noting that global carbon dioxide emissions flat-lined in 2019 thanks in large part to increased renewable fuel usage, and more switching to Nat Gas from coal in electricity production.
Click here to download a PDF of today's TACenergy Market Talk.
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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.