Petroleum Complex Selling Off

Market TalkMonday, Feb 4 2019
Petroleum Complex Selling Off

Most of the petroleum complex is selling off Monday morning, reversing course after a strong Friday finish and overnight gains had pushed prices to their highs of the year so far and set the stage for a big move higher. It’s not clear what’s driving the reversal sell-off this morning, but it could simply be that fears over sanctions and a rash of refinery problems had pushed prices too high too fast.

After a week filled with numerous refinery issues – most due to the extreme cold temperatures – a pair of refinery fires Sunday (one in Toledo OH and the other in Delaware City DE, both happen to be PBF plants) gave gasoline prices more reason to continue their run.

March RBOB futures spiked nearly a nickel when trading started Sunday night, marking an 11 cent increase since Friday morning, but have since given back all of their overnight gains. It’s always a challenge determining what type of a market impact unplanned refinery issues will have, but based on the price reaction so far, it doesn’t seem like either of the weekend fires will create long-term disruptions.

There is still a great deal of consternation about Citgo’s outlook in the short & long term. The Treasury issued notes on Friday clarifying the sanction rules for US-based bondholders of Citgo’s debt, and for purchasers of PDVSA crude (of which Citgo is one of the largest). Long story short, US companies can continue buying Venezuelan crude for 3 more months, as long as the funds go into blocked accounts.

Citgo meanwhile is denying claims that it’s considering bankruptcy in order to continue operating in the US, and by some accounts may soon find itself flush with cash since the funds it generates in the US are not able to be repatriated to Venezuela.

The CFTC announced last week that it would publish 2 Commitments of Traders reports each week to catch up from the time missed during the government shutdown. So, last Friday’s COT report showed data from the week of Christmas and we won’t get current reports for another few weeks. The ICE COT reports continue to be published however, and speculators continue to return to the oil market with net length held by money managers increasing for a 4th straight week.

Baker Hughes reported a decline of 15 oil rigs last week, bringing the US total rig count to its lowest level since last May. Texas and Oklahoma accounted for about half of the decline nationwide.

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

Click here to download a PDF of today's TACenergy Market Talk.