Government Shut Down And Bad News On Labor Front Put Demand Concerns Ahead Of Supply Concerns

Energy markets are ticking lower for a 3rd straight day and have wiped out almost all of last week’s gains. With a government shutdown and more bad news on the labor front put demand concerns ahead of supply concerns for the time being.

With fairly steep backwardation in RBOB, the start of November as the prompt contract has prices at their lowest levels since early April, with a test of the 1 year lows around $1.85 looking likely. WTI is similarly testing multi-month lows and risk a drop into the $50s if buyers don’t step in very soon. ULSD charts are less pessimistic but need to hold above $2.30 this week to avoid seeing another wave of selling.

The EIA announced it was continuing with its normal publication schedule until further notice during the government shutdown, so this morning’s weekly status report is due out at its normal time. Yesterday the EIA released its monthly biofuel capacity report showing that Biodiesel and RD capacity each had small decreases of around 4 million gallons/year, while ethanol production capacity ticked up by 8 million gallons annually.

The API estimated more builds in refined product inventories with diesel stocks up 3 million barrels while gasoline stocks were up 1.3 million. Crude oil inventories were estimated to drop on the week by 3.7 million barrels.

The ADP employment report showed continued weakness in the U.S. labor market with a net decrease of 32,000 jobs for the month with “most sectors” losing momentum. That private payroll report suggests that if the BLS is able and willing to publish a jobs report on Friday, it’s likely to tell another negative story for workers.

Chicago gasoline basis values jumped Tuesday on rumors of an upset at Exxon’s 270mb/day Joliet IL refinery. So far there have been no filings to the Illinois Emergency Management Agency or other outlets to confirm if there is an actual upset at the plant, but the rally in Chicago was enough to lift neighboring Group 3 unleaded differentials off their lows for the year. Keep an eye on the PADD 2 inventory levels today as prior to yesterday both the Group 3 and Chicago markets were behaving more like it was the dead of winter, than the peak of refinery maintenance and harvest seasons.

A new report estimates that 38% of Russian refining capacity has been knocked offline by Ukraine’s drone strikes, which would equate to nearly 2.5 million barrels/day of output which is approaching 3% of the global run rates. Of course, refineries don’t always need to have exploding remote control planes targeting them to have upsets, as a large fire at one of Russia’s largest plants proved this morning.