Energy Prices Pause After Furious Rally
A slow warmup in temperatures, and a cool down in U.S. equity markets has energy prices pausing after a furious rally that has pushed gasoline prices to 1.5 year highs.
While electricity has been restored to the majority of homes taken offline by the extreme weather this week, power is still a major bottleneck for fuel distribution at the terminal level as the orders to (justifiably) focus on getting supply to those at risk of freezing over industrial demand mean that many fuel supply locations can’t yet load trucks, just as those trucks are starting to get back on the road. Fuel outages at retail stations across the state of Texas are growing, and are likely to spread for at least a couple of days as the restart races for businesses of all varieties begin.
A Bloomberg report Thursday suggests that four of the largest refineries in TX could take weeks to restart, and if those estimates are accurate, it’s likely other plants in the region could face similar challenges as damage done by frozen pipes and instruments could become a complicated theme of repair work. A handful of refineries are already attempting to restart units over the past 24 hours, but we won’t know until Monday how those efforts are progressing.
Cash markets don’t seem too fazed by those reports, as gains in basis values continue to be fairly small despite the widespread refinery upsets. Gulf Coast gasoline transitioned to March cycles this week, meaning they’re trading against the summer-spec April RBOB contract. Don’t be surprised to see RVP waivers granted by the EPA to try and alleviate supply bottlenecks in the coming weeks.
Colonial pipeline continues to report that it’s operations are ongoing without shutdowns due to the power issues, although it appears the schedules may have slipped a few days as the main origin points in Houston/Pasadena/Pt Arthur/Beaumont and Lake Charles are all struggling with refinery closures and other power/freezing challenges.
The DOE weekly report showed a large crude oil inventory and a tick up in product demand that helped limit the selling in Thursday’s session, just as it was beginning to snowball. The crude decline was driven almost entirely by a large increase in exports of more than 1.2 million barrels/day, while refinery runs were close to flat (up just 26mb/day) on the week. With refinery runs estimated to be down 20% or more this week, shipping lanes frozen and Permian oil output estimated to be down 40% or more, we should see some record setting figures in next week’s report.
The EIA published a closer look at the supply & demand of electricity in Texas over the past week, detailing how almost all sources of power in the state saw output reduced right as demand was peaking. The charts they provided are a stark reminder of the challenges each form of electricity generation faces, and suggests the lofty plans to run all cars on electric power in the next 20 years is going to be easier said than done.
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.