Energy Markets Are Bouncing To Start Tuesday’s Session, Wiping Out Monday’s Losses

Energy markets are bouncing to start Tuesday’s session, wiping out Monday’s losses following a major stimulus package announced by the world’s largest oil buyer.

A slowdown in Chinese demand has been a major driver in the slide lower in energy prices this year, so it’s no surprise to see a modest price bounce this morning after the country announced its most aggressive stimulus since the pandemic to try and get its economy moving again. This move may still show the vulnerability of energy and other commodity markets that have been dependent on Chinese growth for 2 decades, because if this announcement doesn’t stir a longer term rally, there’s a stronger argument that we could see another major wave of selling in the next few months.

The price action of the past few weeks has spelled more bad news for most US refiners, with crack spreads now trading near 3 year lows, despite several plants undergoing fall maintenance and the winter demand doldrums for gasoline nowhere close to setting in. The USGC 5/3/2 margin ration is already down to where we saw it last winter when multiple facilities cut run rates to avoid pumping cash along with their fuel, and it seems inevitable that we’ll see more of those economic cuts in the next few months.

Helene still has not been named, but is expected to become a major hurricane in the next 48 hours before making landfall somewhere in Florida Thursday night. Right now the path looks favorable to have the storm dump most of its energy in Florida’s big bend region known for more nature than people, and leaving essentially all of the oil and refining infrastructure in the region on the clean side of the storm, and mostly out of harm’s way. Tampa Bay continues to look vulnerable to any eastward shifts as it’s staying on the dirty side of the storm and the numerous terminals on the edge of the water could see substantial storm surge.

Meanwhile, non-named storms continue to disrupt energy supplies in other parts of the country as high seas have delayed vessel traffic throughout New England creating several short term supply outages. West Coast markets meanwhile are dealing with a different type of storm as the industry and government officials continue to haggle over new rules for refiners in California, renewable importers seem unsure what to do when the BTC expires at the end of the year, and the state opened a new front in its war vs the industry Monday, suing Exxon over plastic recycling. At least California hasn’t followed China’s lead in making economists critical of its policies disappear yet.

The EIA this morning highlighted how the US has become the world’s largest exporter of gasoline in the past decade, after more than 50 years of being a net importer of gasoline. More than 90% of those exports come from the USGC, and more than 50% go to Mexico, which explains why refiners in the region are so weary of short term threats like hurricanes, and longer term threats like new refineries in Mexico, Africa and Asia taking their market share.