Energy Markets Trying To Move Higher

Market TalkWednesday, Dec 12 2018
Rare Red Day For Energy Markets

Energy markets are trying to move higher for a 2nd day, but still seem to be struggling with setting a definitive price floor as their overnight gains have been eroding this morning. A large decline in US crude oil inventories is taking credit for the move higher overnight while equity markets continue on their trade-induced rollercoaster ride.

The API seemed to surprise many Tuesday afternoon when it was said to report a 10 million barrel draw in US oil inventories last week. Then again, the API showed a 5 million barrel build a week ago while the EIA showed a 7 million barrel decrease, so this week’s move seems explainable as the voluntary industry report catching up with the mandatory government report, and perhaps not an indicator of what we might see from the DOE report this morning. The API also showed a decline of 2.4 million barrels of gasoline last week while distillates increased by 712 thousand barrels.

The EIA offered more insight to last week’s data point showing the US exported more oil and petroleum products than it imported for the first time in around 75 years in a new report this morning. Given the huge swings in the weekly flow of exports and imports to reach that milestone, don’t expect a repeat performance in today’s status report. If China returns as a buyer of US Crude however, that may finally tip the scales to make the US a net exporter on a more regular basis.

Speaking of which, volatility in both equity and energy markets remains high (as displayed by the VIX and OVX chart below) as uncertainty over Trade continues to roil markets depending on the latest headline. Tuesday we saw large early gains in stocks wiped out following reports that a Canadian was arrested in China, in an apparent retaliation for the Chinese executive arrested in Canada last week. Stocks are pointed higher ahead of the open this morning as the US Trader-in-Chief said he would intervene in the latter case if it meant getting a trade deal done with China.

OPEC released its monthly oil market report for December this morning, showing that the cartel’s production held flat last month, as an increase in Saudi Arabian output offset the large declines from Iran. Looking ahead to 2019, the ongoing trend of supply beating expectations while demand growth missing the estimates from earlier in the year seems to be a theme throughout the report, and makes it easier to see how the cartel was able to reach its agreement last week.

Other notable items from the OPEC report:

“Non-OPEC oil supply growth in 2018 is estimated at 2.50 mb/d, an upward revision of 0.19 mb/d from the previous month’s assessment. The US, Canada, Russia and Kazakhstan are expected to be the main growth drivers, while Mexico and Norway are anticipated to show the largest declines…”

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap