Panic Has Crept In To Global Equity Markets
For the first time since April a bit of panic has crept in to global equity markets and the ripple effects are being felt in the energy arena. The DJIA had its 3rd worst point drop in history Wednesday, wiping out nearly 2 months of gains, and several other indices have fallen below their 200 day moving averages for the first time in 6 months. Stock markets around the world caught the selling bug overnight and now US futures suggest the cycle may begin again today.
Energy markets have not been immune to the selling– as is often the case in a fear-driven market, correlations between asset-classes increases – setting up a pivotal test for oil prices to end the week. At this moment, both Brent and WTI are trading below the trend line that began almost 8 weeks ago, and if they can settle below it that would leave the door open to a test of the longer term trend some $5/barrel below current levels. If prices manage to bounce however, the past 2 days of selling will look more like an overdue correction for an overheated market, rather than a change in the trend.
The API did not offer any relief for energy bulls as it was reported to show a build of 9.7 million barrels in US oil inventories last week, along with a 3.3 million barrel build in gasoline stocks. If confirmed in today’s Columbus day-delayed DOE report, that would be the largest weekly increase in more than 1.5 years. Then again, last week’s DOE report showed a build that was 7 million barrels larger than the API’s report, so yesterday’s report could simply be the industry group’s data catching up to the government’s, and we may not see much of an increase at all today. We’ll find out at 11am Eastern.
Looking for a silver lining in the midst of the selling? The big declines have brought back the “Face-in-hand trader” one of the more beloved characters in modern headline literature.
It’s been a rough week for Canada Eh? With the country’s largest refinery closed due to an explosion and fire, Western Canadian Crude prices reaching 2 year lows at $27/barrel, then a major natural gas pipeline explosion that may cause power outages and refinery closures around the Pacific North West.
Those PNW refinery closures have sent prices in the region soaring, with RBOB values around Portland trading some 50 cents above NYMEX futures, which is dragging up gasoline values in California by 20-30 cents as replacement barrels will be needed from the south.
The damage assessments are beginning after the record-setting landfall of Hurricane Michael. While the damage is sure to be devastating in many ways, at this point it appears that the impacts to energy infrastructure are minimal.
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Energy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
Click here to download a PDF of today's TACenergy Market Talk.
WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.