Energy Futures Treading Water To Start Week
Energy futures are treading water to start the week with prices hovering within striking distance of a technical breakout that could send prices up another 10% or more this spring, but so far unwilling to commit to that move.
OPEC announced they’re cancelling their April meeting, deciding to wait until June to decide if it needs to continue with its production cuts, giving more time to assess the impact of sanctions on Iran and Venezuela on global supplies and prices.
A trio of fires over the weekend have so far failed to spark a rally in product prices, although it’s still unclear whether they’ll impact regional supplies. Friday saw a fire at the P66 plant in Carson, CA, Saturday there was a fire at Exxon’s Baytown facility, and Sunday saw a fire in 2 tanks containing gasoline components at a Deer park terminal facility. The lack of reaction so far in prices may reflect a wait and see attitude by traders skeptical that this will impact supplies, but is also likely a reflection that these facilities aren’t tied directly to the NYMEX contract delivery points in the New York Harbor.
Refined products continue to find strength from planned and unplanned refinery downtime, with numerous reports that plants have been taking advantage of weak margins to start 2019 to front load maintenance for the expected demand surge in the back half of the year ahead of the marine diesel spec changes.
Baker Hughes reported a decline of 1 oil rig last week, marking a 4th straight week drop in the total US count. Texas saw its 10th consecutive decrease as production in the Permian basin continues its gradual slowdown.
Money managers continue to be unenthused by petroleum contracts in 2019. Brent and WTI did see small increases in speculative net length last week, but they remain well below year-ago levels, and towards the bottom end of their 5 year seasonal ranges. RBOB is the only contract seeing above-average speculative bets on higher prices, with managed money net length increasing for the 5th time in 6 weeks. The net short position held by swap dealers in WTI did increase for a 2nd straight week, suggesting producers may be using the recent run-up in prices to begin hedging more of their anticipated production.
The great transition continues as the EIA noted that the US Gulf Coast (PADD 3) became a net exporter of crude oil in the last 2 months of 2018. The Midwest (PADD 2) is now the largest importer owing to Canadian shipments via (mainly) pipeline and rail.
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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.
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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.