Market Players Grapple With Numbers Never Seen Before

Market TalkThursday, Jul 30 2020
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We’re seeing a modest round of “risk off” selling in energy and equity markets to start Thursday’s session, as recovery doubts appear to be growing and market players grapple with numbers they’ve never seen before. 

This latest round of selling is pushing petroleum futures towards the lower end of their July trading range, which could mean sharp losses if support breaks down, but until it does these relatively small moves aren’t changing the neutral outlook. Peg $1.20 for products and $40 for WTI as must-hold levels this week to keep the sideways pattern intact.

The DOE’s weekly status report was highlighted by a 10 million barrel draw in U.S. crude oil inventories, and a tick higher in domestic fuel consumption. Seven million barrels of the crude draw was accounted for by a plunge in imports and stronger exports, with the balance made up for by a strong increase in refinery runs. The muted market reaction to that large draw suggests there is plenty of doubt that any of those three factors are sustainable as long as reopening plans continue to be delayed.

The rest of this week will be heavy on Q2 earnings reports, which are expected to be the worst in more than a decade for most oil producers and refiners. Shell reported an $18 billion loss for the quarter, as the demand slump wiped out its operational earnings and the company took at $16.8 write down of its assets, and cut its dividend for the first time in over 70 years.

On top of the Q2 earnings releases, this morning we got the official word on Q2 GDP which dropped by 32.9% on the quarter – and the crazy part is that was actually better than many forecasts

Tropical Storm Isaias’ path shifted East over the past 24 hours, now threatening the eastern half of Florida, and the SE Atlantic coast. The NHC predictions continue to suggest that this system will not reach hurricane strength, but don’t be surprised if that changes quickly in the next several days as it reaches warmer water. Although Isaias currently looks like it will not threaten energy supply infrastructure in the gulf of Mexico, given that we’re still five weeks away from the peak of hurricane season, and there’s yet another system moving off the African coast this week, it’s feeling like just a matter of time before we see a system that creates a meaningful supply disruption.

Click here to download a PDF of today's TACenergy Market Talk.

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

Click here to download a PDF of today's TACenergy Market Talk.