Energy Markets Are Cooling After Hot Start For The Month

Energy markets are cooling their heels after a hot start to September trading pushed 8-10 cent increases for products on Tuesday.

RBOB gasoline futures are leading the pullback this morning, down more than 4 cents in the past hour after reports that Nigeria’s Dangote refinery is sending its first gasoline cargo to the U.S. this week. While that shipment on its own may not move the needle for regional supplies, it’s the latest sign that the huge facility – which would be the world’s largest single train refinery if it meets its nameplate capacity of 650mb/day – is changing the flow of refined products across the Atlantic basin. The timing of the delivery seems to be fortuitous as basis levels in NYH have spiked north of 30 cents/gallon for the first time since the chaotic trading of 2022, although there will only be a few short days of summer-grade gasoline spec requirements when it offloads, suggesting it may be a (much cheaper) winter grade product onboard.

That spike in basis values leaves shippers in the NY region in a perilous position where the fuel in their tank today will be worth roughly 30 cents less in 2 weeks and will encourage some to fire-sale their remaining inventories, while others may be content just to run out which could create some localized shortages. The lack of interest in shipping barrels from the USGC to NYH during this spike shows that the big refiners aren’t buying into the short term hype, leaving values for space along Colonial’s line 1 in negative territory.

Another one bites the dust: Shell announced it is scrapping its plans for a biofuel facility in the European hub of Rotterdam deeming the project to be “insufficiently competitive”. The release tried to also highlight the company’s other efforts towards building renewable and EV infrastructure, but there’s no mistaking the company’s attempt to back pedal after years of chasing a net zero pipe dream.

The tropical wave moving across the Atlantic is still given 70% odds of being named in the next week, but its path remains uncertain. The majority of storms that form in this region end up not hitting the U.S. coast, but those that do are typically devastating as they have plenty of time over warm water to grow. IF this system is named and heads for the U.S., it will likely be late next week before any impacts are felt so there will be plenty of time for panic buying preparations to be made.

Meanwhile, Hurricane Lorena has formed off Mexico’s Pacific Coast and is expected to intensify rapidly over the next 24 hours as it approaches the Baja California coast. The good news is that models suggest the storm will weaken as it approaches land on Friday. Beyond the impacts to Mexico, this system could bring heavy rains to parts of Arizona, New Mexico and West Texas over the weekend.

The EIA this morning published a note on the heavy concentration of U.S. oil production in just 10 counties, 2 in New Mexico and 8 in Texas. Those counties, all in the Permian basin, account for more than 1/3 of the country’s total oil output, and 93% of the rapid growth in production over the past 5 years that pushed the country to record output despite a drop in drilling activity.

Russia and China announced a major pipeline “deal” to transport natural gas from Siberia to China via Mongolia. The announcement was part of an event bringing leaders of numerous sanctioned nations together in what many believe to be a show of strength against the U.S.. There’s one catch to this long-discussed deal however, they still haven’t come to terms on how the gas will be priced.

The U.S. meanwhile just set a new record for natural gas exports in August as the latest LNG export facility increased capacity to freeze and ship the fuel overseas. The rapid increase in LNG export capacity over the past year has put the U.S. in the lead for global natural gas exports, with roughly 2/3s of that volume going to Europe.