Energy Futures Are Bouncing Sharply After A Big Monday Sell-Off
Energy futures are bouncing sharply after a big Monday sell-off as the search for direction continues to be the theme so far of the new year.
ULSD futures have alternated between gains and losses in each of the 6 trading sessions so far in 2024, and today’s rally has them once again challenging the downward sloping trend line that’s kept rallies in check ever since prices topped out north of $3.50 back in September until bottoming out a $2.48 in December. A break and hold above the $2.65 level this week for ULSD would confirm a short term “W” pattern that should propel prices quickly to $2.80 to fill the gap left behind by the roll to January futures at the start of December. The technical landscape is less bullish for WTI and RBOB futures that look stuck in neutral and content to continue in this recent back and forth pattern for a while.
Rumors of shipping companies making pacts with the Houthi rebels for safe passage through the Red Sea seem to be contributing to the big back and forth this week, although several large shippers have denied any deals being discussed. Meanwhile, a Reuters analysis shows that despite so many reports about ships diverting around the Cape of Good Hope, the vast majority of oil and refined product tankers continue to take the Red Sea route, accepting the increased risk in exchange for shorter transit times and lower costs.
Chevron’s Richmond refinery reported another operating upset Monday, but the San Francisco spot market seemed to shrug off that latest hiccup.
Meanwhile, the LA area is also dealing with upsets as PBF’s refinery in Torrance reported 3 different unplanned flaring events Monday afternoon and overnight. The LA spot market had come under heavy selling pressure to start the year as the annual demand doldrums caused inventories to swell, so traders may shrug this off, although it’s too early to say whether or not those events spark any buying interest.
Basis values on the Gulf Coast have been rising steadily since bottoming out in early December. ULSD basis values climbed from a record setting discount of more than 44 cents for prompt barrels on December 11th to an 11 cent discount today. The move for gasoline grades has been less dramatic, but has been enough to send values for shipping barrels along Colonial back into negative territory. Those negative shipping values should back up barrels into the Southeast after a few months of tight supply while shippers tried to maximize their movements into New York harbor.
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News & Views
View AllEnergy 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.
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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.