Energy Futures Are Trying For A 2nd Day Of Gains After A Roller-Coaster Of A Trading Session Monday Ended On A Strong Note
Energy futures are trying for a 2nd day of gains after a roller-coaster of a trading session Monday ended on a strong note, shrugging off a surge in the US dollar and weaker equity markets.
Reports Monday that US troops in Syria had come under attack again with a drone that killed 6 allied Kurdish soldiers, seemed to be contributing to the rally as it is now clear that the retaliation efforts are far from over, and any hopes of a quick resolution to the violence are fleeting. Israel also announced a new ground offensive near the border with Egypt, suggesting negotiations for a cease fire weren’t going anywhere this week.
The first week in February has seen a strong recovery in crack spreads, with values on the Gulf Coast pushing to their highest level in 6 months as a busy spring maintenance season kicks off, and some facilities are still repairing units after the January freeze, while Mid-Con values are recovering after reaching their lowest values since 2020.
Basis values in the Mid-continent cooled Monday after a big rally to start February as traders continue to wait on news from BP Whiting’s unplanned shutdown due to a power outage last week. More news is expected on restart efforts and the expected duration later this afternoon.
A state of emergency was declared in 8 California counties as 3 days of heavy rains caused flooding and mudslides. Marathon reported unplanned flaring at its LA-area Wilmington refinery Monday morning, although it’s unclear if that upset was weather related. So far there have not been reports of terminals or pipelines being knocked offline by the heavy rains, so the supply impacts appear to be minimal at this point, although demand is no doubt slowing dramatically until the roads dry out.
The controversy surrounding 2 Bay-Area refinery conversions isn’t really news at this point, but one point in a recent news article is noteworthy as it highlights the physical challenges with Hydrogen refiners face when making RD and SAF. Flaring immediately ramped up following that [Marathon Martinez] refinery's conversion, largely tied to the more intensive use of hydrogen needed to process renewable diesel.
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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.