Energy Market Rally, New Sanctions Announced, US Stock Market Climbing

Energy markets are rallying once again to start Friday’s trade, erasing their “Reversal Thursday” slide. At current values, RBOB and ULSD would both end the week up around 4 cents/gallon while crude oil prices are up around $1.70/barrel.

The UK announced a new sanctions package against Russia, targeting 70 more ships in the “shadow fleet” of tankers meant to bypass similar rules.

Despite the flashing warning signs on economic activity, U.S. stock markets are acting like its early 2000 once again, with indices setting record highs and rumored mega mergers giving off AOL-Time Warner vibes. As has been the case for most of the summer, energy markets seem to be ignoring the moves in equity markets with a 30 session correlation between the asset classes holding in negative territory.

Prices to lease space on Colonia’s main gasoline line have jumped to their highest level of the year but are a far cry from the premiums we’ve seen in prior years. The NYH gasoline basis market remains elevated ahead of next week’s RVP transition while Gulf Coast shippers are already moving winter barrels north.

California’s Carbon Allowances jumped to a 6 month high this week after the state voted to extend the Cap & Trade program that makes up those allowances out of thin (presumably cleaner) air, from 2030 to 2045. That agreement is set to be voted into law over the weekend, along with numerous other deals including an increase in the state’s oil permits as the Governor continues to attempt to rebrand himself and the state as energy tolerant as the folly of their war on refiners has become more obvious in the past year.

Of course, the rapid changes in refinery capacity in the state are also impacting oil producers and shippers, with the largest inland crude pipeline threatening to shut down if the state doesn’t allow it to increase its rates. Meanwhile, the state’s largest refined products pipeline has had multiple shutdowns over the past week due to power issues and a train derailment that have caused minor delays in shipments to the Colton CA hub and the Phoenix and Las Vegas markets.

Washington state’s made up out of thin air Cap & Trade credits meanwhile hit a record high north of $64/credit at their most recent auction, which equates to 50 cents/gallon for gasoline and 64 cents/gallon for diesel. Those high compliance costs, coupled with a spike in basis values following the Olympic pipeline shutdown have Washington consumers chasing California for the highest retail prices in the country paying an average of $4.50/gallon, vs a national average of $3.31/gallon and an average in Texas of $2.80.

The NHC now gives 40% odds of development to a tropical wave moving across the Atlantic, but its potential development area has shifted north in the past 24 hours, reducing the odds that it will threaten the U.S. if it does become a named storm.

Motiva and Exxon both reported upsets at their Pt Arthur/Beaumont area facilities Thursday, but those upsets only appear to impact the chemical sections of the plants and shouldn’t have any influence on refined product production.