Volatility In Both Energy And Equity Markets Remains Low

Energy futures are treading water to start Thursday after 4 strong trading sessions have moved prices back into the middle of their fall trading range, putting last week’s concerns of a technical breakdown firmly in the rearview for now. Volatility for both energy and equity markets remains low by historical standards, and the correlation between the asset classes remains nonexistent as the S&P 500 reaches fresh record highs.

The latest truce agreement in Gaza seems to have been shrugged off by the market so far as shippers have long ago adjusted their routes to bypass the Red Sea, and perhaps due to some doubts that this ceasefire will be different from those that came before it.

U.S. Oil production reached the 2nd highest of all-time last week at 13.629 million barrels/day, just shy of the record set last December, and an increasingly impressive feat as it’s occurring despite a big slowdown in drilling activity this year. U.S. refiners are also showing what they’re capable of when given an economic incentive as run rates hold above their seasonal range despite numerous operational upsets and the permanent shutdown of the P66 facility in LA.

A storm by any other name: A “Hybrid” storm system that isn’t quite tropical and isn’t quite a Nor’easter is set to pound the East Coast over the next few days coinciding with King Tides that will increase the coastal flooding threat. The National Hurricane Center doesn’t show this system on its map since it’s not necessarily tropical in nature, but AccuWeather forecasters suggest the impacts to the East Coast will be similar to a category 1 hurricane. Even though this system isn’t officially on the NHC radar yet, it could end up being named Karen before it’s done, which would seem fitting for a storm that’s about to ruin a bunch of people’s weekend plans.

At an estimated 1-6 feet of storm surge, the Philadelphia-area refineries should be OK, but vessel traffic around the New York harbor and New England ports will be delayed due to high seas. Power outages at refineries and terminals will also be a concern, particularly if we do end up seeing hurricane-strength winds.

Meanwhile, refineries around the U.S. continue to have operating upsets with less exciting causes.

Exxon reported an upset in an FCC unit at its 630mb/day Beaumont TX refinery that lasted a full 24 hours and ended yesterday evening. Energy News Today is reporting that restart efforts for that unit are underway.

Valero reported an upset at its 160mb/day Houston TX refinery after planned maintenance inadvertently caused a loss of power. That upset caused flaring in 2 areas of the plant but does not seem to have caused damage as the flaring lasted only 4 hours.

Citgo reported an upset at its 177mb/day Lemont IL refinery Thursday evening, which appears to have forced that facility to cut back run rates. The filing with the Illinois Emergency management Agency suggests a compressor malfunction caused a vapor cloud to be released, which prompted workers to “start cutting back [the] refinery immediately” and it appears that event is ongoing as of this morning.

Notes from the DOE’s weekly status report:

Crude built on an uptick in imports as exports slowed and production ramped up to within 2,000 barrels per day of its all-time high seen December of last year. Refinery runs increased significantly in PADDs 1 & 3 to outweigh declines elsewhere. All PADDs are operating well above seasonal norms except PADD 5, which has seen a few refinery issues and is trending along year ago levels at just below average. It’s worth noting that the data is compiled as of last Friday, so any impacts from the fire at Chevron El Segundo won’t really show up in these numbers yet.

Diesel inventories drew across all PADDs with demand surging from the bottom of its 5-year range to the top week over week. Total stock levels are trending ahead of the past two years but are still about 7 million barrels shy of their 5-year average.

Gasoline also saw increased demand pull down stock levels across all PADDs except 4, which has increased each week over the past month. PADD 2 dropped, but only slightly and still sits above its 5-year range. PADDs are mixed at above and below average levels holding the total count about a million barrels below average. Ethanol production fell three weeks in a row but jumped back up above its 5-year range last week; however, stock levels were little changed due to exports increasing in similar fashion. Ethanol prices have dropped by 20 cents this week as that increase in production seems to be outweighing any tick higher in demand from recently approved E15 blending.