Muted Reaction In Both Futures And Cash Markets
Energy futures are pulling back as August trading wraps up, with damage assessments along the Gulf Coast ongoing while the East Coast braces for another round of flooding rains as Ida moves north. While it will still take days to figure out the extent of the damage to one of the country’s largest oil hubs, the muted reaction in both futures and cash markets suggests the impact of this storm will not be widespread.
What a difference a decade makes: 2011 was the year the US became a net exporter of refined products for the first time since WWII. Prior to that, storms that made a direct hit on the country’s largest oil port, and 2nd largest refinery hub, would be expected to bring price spikes of $1/gallon or more. This time, gulf coast basis values barely flinched at one of the strongest storms to ever hit the Gulf Coast, even though it temporarily shuttered more than 10% of the country’s refining capacity and its largest pipeline, as the capacity to recover simply by not sending barrels to other countries has grown by millions of barrels/day.
Colonial pipeline did report that it was planning on restarting its 2 mainlines Monday night after a precautionary shutdown Sunday. The pipeline formerly known as Plantation, is still operating, but like most in the Baton Rouge area, is struggling with power outages that could end up forcing the need for the line to slow or shut. Exxon’s Baton Rouge refinery, a key origin point for the FKA Plantation pipeline, reported that it was forced to shut multiple units due to a lack of steady power and refinery inputs. Most of the other refineries that shut ahead of the storm have not yet made full damage assessments due to the widespread flooding and power issues. Early estimates are that most avoided major damage, but power supply will be the bottleneck determining how fast restarts can begin.
The EPA granted waiver requests allowing the sale of winter-grade gasoline (11.5lb rvp) 2 weeks earlier than normal in Mississippi and Louisiana to try and help alleviate any potential supply shortages. Pipelines were already just days away from starting to schedule winter grades, and the scope of the waiver is limited to just the 2 states so far, so it shouldn’t put downward pressure on prices elsewhere in the region.
While all eyes were focused on Ida, Tropical storm Julian came and went over the open Atlantic, and Tropical Storm Kate has also formed but looks like it will stay out to sea. Next up in the list for the year is Larry, and the NHC is giving 90% odds of a system moving off the coast of Africa getting that name later this week. That system is a good reminder that we’re now into the “Cabo Verde” portion of the Hurricane season where the systems moving off the African coast become more frequent, and form some of the most powerful storms we see each year, which is scary considering what we just saw from Ida that didn’t have nearly as much time to develop.
In non-storm news:
US equity indices reached fresh record highs (again) Monday, and are on pace for a 7th consecutive month of gains, just in time for the seasonal tick up in volatility.
Following up on a White House request, the FTC said that it is looking into whether or not retail station mergers and acquisitions is creating illegal activity in the way gasoline prices are set. It’s hard to say what, if any, changes this may bring about in the industry, but it certainly seems like it could slow down the rapid consolidation of retail station owners we’ve seen over the past several years.
The Dallas FED’s Texas Manufacturing Survey showed another month of expansion, but continued to highlight labor shortages and supply chain delays as major hurdles to continued growth.
Speaking of which, Bloomberg provides today’s interesting read: The race to recruit women to help fill the labor gap in the trucking industry.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.