Energy Markets Losing Monday Gains As They Trend Lower

Energy markets are tumbling to start Tuesday’s trading with oil and refined products down around 1.5% in the early going, wiping out most of Monday’s gains in ULSD and WTI, and stretching losses in RBOB gasoline to a 3rd straight day.

Markets around the world are anxiously watching the U.S. President’s challenge of FED autonomy this week after governor Lisa Cook was apparently fired overnight only to say she won’t step down since he has no authority in this situation. While the U.S. Dollar and bond markets reacted negatively to the news, U.S. stock indices haven’t made big moves so far, so it’s unclear if we’re seeing a risk-off reaction in energy prices, or simply a pullback after a strong week of gains.

A Reuters note this AM suggests Russia is being forced to increase its oil exports due to the number of refineries knocked offline by Ukrainian drone strikes. That announcement also gives Ukraine a nice new target at the ports that will be exporting the extra crude, one of which was hit over the weekend. Estimates on anything from Russia should be taken with a large grain of salt, but several reports suggest 10-15% of the country’s output is currently offline due to the attacks, which equates to around 500-750mb/day of refined product output.

Chicago spot markets are pulling back after spiking last week in the wake of the BP Whiting refinery shutdown following flash flooding in the Chicago area. RBOB basis values in Chicago are down more than a dime from their high trade last week as the facility appears to be restarting units without signs of any long-term damage.

The West Coast meanwhile is dealing with its latest basis spike on the heels of upsets at 2 LA area refineries, just as the market is preparing for the end of the summer RVP season - which often coincides with a supply squeeze. PBF’s Torrance refinery has been hit by multiple unplanned upsets this year, which is extra inconvenient given the company is leaning heavily on this plant to supplement lost supplies from its damaged Martinez refinery that’s been mostly offline since a fire February 1. Reports this week of an unplanned upset followed by planned flaring suggest extended repairs and have helped push spot values to premiums north of 50 cents over October RBOB futures. Those gains are less impressive compared to the prompt September contract which expires Friday as it’s the last summer-spec contract of the year and is holding around 17 cents above its winter counterparts. In addition, the P66 Wilmington refinery that’s scheduled to close in October is reporting flaring this morning.

Ethanol prices reached their highest levels in a year Monday. Spot ethanol values in the U.S. are up 25 cents from their June lows, despite a large drop in corn prices. U.S. ethanol prices seem to be benefitting from trade deals that are allowing U.S. exports while prohibiting imports. Most notably, the UK’s largest ethanol producer has shut its doors in the past couple of weeks as it simply can’t compete with tariff free ethanol imports from the U.S.. If it seems odd to plant corn year after year in the Midwest to produce alcohol that gets put on a train to the coast then on a boat to Europe to blend in their gasoline pool you’re not alone, particularly given the various farm and biofuel subsidies that may or may not contribute to the process. Read here if you’re interested in more detail on the logistics involved.

Tropical Storm Fernand is moving further away from the U.S. Coastline this morning, and the other system that had been tracked by the NHC as it approached the Caribbean has dissipated suggesting we will get to enjoy a calm Labor Day weekend before heading into the peak of the Atlantic hurricane season.

Motiva reported an upset in a hydrocracking unit at its 654mb/day refinery in Pt Arthur TX on Sunday which lasted 4.5 hours. That came just 2 days after the company’s adjacent chemicals plant reported an upset, although the two events appear to be unrelated. Gulf Coast basis values did tick modestly higher on Monday, but it doesn’t appear to have been caused by the Motiva upset with Energy News Today reporting the hydrocracker was already back to normal rates by Monday afternoon.