Glimmers Of Optimism Creep Through

It’s a rare risk-on day for global markets as small glimmers of optimism are creeping through the coronavirus panic pandemic. It appears that congress is close to an agreement on a huge stimulus package, and China is starting to ease travel restrictions, giving a light at the end of the tunnel for the U.S. and other countries at the early stages of their lock-downs.

Don’t jump at the head-fake: We’ve seen this pattern a few times during the March meltdown where an overnight bounce is unable to sustain itself. This time we saw gasoline prices up nearly nine cents overnight, while WTI was up nearly two dollars, before most of those gains were erased in early morning trade, so it’s still way too early to say that the worst is behind us.

On the other hand, RBOB futures have dropped $1.15/gallon in the past 18 days, leaving only 40 some cents to get to zero, so you could say with confidence that the majority of the losses have already been seen.

The bizarre world of gasoline prices: Many regional spot markets were going for 30 cents or less a gallon following our third consecutive Monday meltdown, and prompt barrels on Wolverine pipeline were going for 17 cents. Given the rapid drop in demand, and tanks reaching capacity, it is not hard to imagine a scenario where a shipper is forced to sell gasoline at a negative number temporarily to clear their inventory. Don’t think that’s possible? Read how it happened with natural gas prices last year.

Ethanol prices are trading at all-time lows, and yet they’re still some 60-80 cents more expensive than the gasoline grades they’re being blended into.

Numerous refinery changes have been announced this week, as plants coast to coast are forced to curb runs. Yesterday alone we saw announcements from Delta/Monroe and P66 on the East Coast, and two Exxon plants in LA and TX, while Husky, BP, Citgo, Marathon have all also announced cut backs and/or changes in maintenance schedules. Even those plants that haven’t announced changes seem likely to be making adjustments to deal with the rapidly dropping demand, and negative margins.

In addition to the U.S. plants, the Caribbean refinery formerly known as Hovensa has been working on restarting for several years, but those efforts look like they could be delayed after a worker tested positive for the coronavirus.

For now it seems like the run cuts are hovering around the 20 percent range, consistent with last week’s announcement from Colonial pipeline that it would reduce flow rates by the same amount. Depending on how long this shelter-in-place lasts, those cut backs could easily change to 50 percent or more in the next few weeks as the demand slowdown appears to be getting worse by the day.

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