Pullback In Prices After Euphoric Monday Gains
Energy prices are moving higher for a second day, but are trading below where they were this time yesterday when the runaway vaccine rally was in full force. The pullback in prices Monday afternoon seemed to follow the lead of U.S. equity markets that gave back most of their euphoric gains from early Monday morning, as the reality of logistics and timing with the new vaccine started to set in. The high water marks from the early run up set the near-term resistance layers that will determine if we see a strong November rally in prices, or just a return to the sideways shuffle that’s been going on since June.
Physical gasoline markets were less enthusiastic Monday, with basis values across most U.S. spot markets sliding and offsetting some of the big gains in RBOB futures. The reality seems to be that the seasonal demand slowdown is already upon us, and any pickup in demand from a vaccine isn’t likely to start until next year.
Physical diesel markets on the other hand continued to see stronger basis values that sent cash prices in most markets to their highest levels since August, while West Coast values reached their highest levels since March. Midwestern basis continues to strengthen – Group 3 prompt bases values reached their highest levels in more than a year – as the end of a strong harvest season has helped inventories decline rapidly.
Tropical Storm Eta is back over open water in the Gulf of Mexico after lashing south Florida with heavy rain over the weekend. The latest forecasts have it heading towards the Florida Panhandle this weekend, but AL, MS an Eastern LA are still in the forecast cone, which brings several refineries into its potential path. The good news is that even though this storm could again reach hurricane strength over open water this week, it’s expected to lose strength as it approaches land for the fourth time in its long and winding path. With winds dropping into the 35 mph range there should be minimal damage, but heavy rains and power outages will still be a concern.
Tropical Storm Theta set the all-time record for named storms in a single season at 29 when it formed in the open Atlantic overnight. That storm is heading east towards Portugal and will not threaten the U.S.
Meanwhile, another tropical wave is given 70% odds of developing into the 30th named storm of the year over the next five days. As we have seen already this year with hurricanes Delta, Zeta and Eta, the warm Caribbean waters can spark rapid development once these storm systems get organized.
RIN values continue to rally, with both D4 and D6 values pulling near three-year highs as the expected administration change looks more friendly to renewables than refiners. Specifically it’s expected that the new EPA administers are less likely to push small refiner exemptions, meaning more demand for RINs (assuming those small refiners aren’t forced to close their doors).
The latest in the rapidly changed refinery landscape: Shell announced more capacity reductions at its facilities in Singapore. Delek laid off workers and is deferring maintenance work at its Krotz Spring plant to 2021, and BP announced a new hydrogen project at the Lingen refinery in Germany. That project aims to produce hydrogen from water using electrolysis, and replace some of the natural gas based hydrogen that’s produced at the plant currently.
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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.
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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.