Refined Products Are Sliding To Start The Week
Refined products are sliding to start the week, while crude oil prices are up more than $1/barrel in the early going.
Weaker equity markets following the FED’s Friday reminder that it wasn’t done fighting inflation is getting some credit for the sell-off. In addition, refined products appear to still be taking cues from European energy prices which are seeing a healthy sell-off after Germany reported it was ahead of schedule in filling up its natural gas storage, which could help avoid an electricity crisis this winter.
The EPA has waived summer gasoline RVP requirements a few weeks ahead of normal for 4 Midwestern states to help deal with the fallout from a fire at the BP refinery outside of Chicago which is the largest plant in the region, and 6th largest in the country. In addition, Michigan’s governor has declared a state of emergency, Chicago basis values jumped on Friday as buyers scrambled to find other options, with the refineries restart timeframe still up in the air.
Short covering was the theme last week for money managers, who slashed their bets on falling petroleum prices in dramatic fashion, and drove a large increase in net length on most contracts. ULSD was the only one of the big 5 petroleum contracts that saw a decline in net length held by large speculators, even though 5% of the outstanding short positions were covered during the previous week. Open interest in crude and refined product contracts continues to hold at 5-7 year lows, which appears to be a key contributor to the low volume/high volatility daily price swings we’ve become accustomed to.
4 more oil rigs were put to work last week, according to Baker Hughes’ weekly rig count, while natural gas rigs saw a decline of 1. The Texas side of the Permian basin accounted for most of the increase in oil drilling last week, while the Eagle Ford basin saw a decrease of 2 rigs on the week.
The tropics woke up after a long summer nap. The National Hurricane center is tracking 4 different potential storm systems this week. Three of those systems are given low odds of development, but one is given 80% odds of getting a name over the next 5 days. If that storm isn’t named by Wednesday, this would be the first time in 25 years that we’ve gone the entire month of August without a named storm. Despite the slow start, forecasters are still calling for an above-average storm season, which means September is going to get very busy if they’re right.
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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.