Second Quarter Winds Down In Quiet Fashion

Market TalkTuesday, Jun 30 2020
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The second quarter is winding down in a quiet fashion so far with minimal moves in refined products, although oil prices are feeling some downward pressure in the early going. From a chart perspective, most energy futures are moving into a neutral territory which suggests the summer doldrums may soon be upon us with choppy but aimless trading to be expected.

July RBOB and ULSD/HO futures expire today, so look to the August (RBQ/HOQ) contracts for price direction this afternoon.

This was an unprecedented six months for energy markets. Remember in January when the U.S. and Iran started lobbing missiles at each other, threatening to send crude to $100/barrel? What a quaint idea that seemed just three months later when prices for WTI went negative for the first time ever, then about 25 minutes later went to negative $40/barrel.

Perhaps most remarkable about all of it is that as the dust is settling, oil prices are ending the same quarter that saw a 350 percent price drop in one day, with their largest quarterly percentage increase in three decades.

Looking back, the second quarter may be remembered as either the ultimate sign of American resilience, with U.S. energy and equity markets rallying sharply in the face of so much fear and uncertainty, or perhaps as one of the biggest head-fakes of all time if those fears come true later in the year.

It’s been a rough week so far for the oil majors. Exxon announced it was preparing substantial
job cuts
over the weekend, BP announced it was selling its chemicals unit Monday, and now Shell announced it was planning an asset write down of up to $22 billion this morning.

Refiners aren’t faring much better these days as margins remain tight, and production increases are hampered by the unknown impact of the latest activity restrictions. Some Midwest refiners are also having to deal with the closure of Enbridge’s line 5 – which could become permanent – and is forcing at least temporary run cuts at OH and MI refineries.

Better times ahead? The Dallas FED’s Texas Manufacturing outlook showed a strong recovery in June, indicating an expansion in factory output after three months of steep declines. Similar to the energy outlook published last week, the factory survey shows expectations that most operations will be close to full capacity by the end of the year. That optimism may be a key barometer to watch in July as we’ll get a chance to see whether or not the tighter restrictions at the state and local levels impact these businesses.

After a volatile June, RIN values have been quiet as we approach month end. The possibility of retroactive small refinery exemptions continues to seem to be the market driving ping pong ball in the renewables market, with governors on the ag side of the debate weighing in with the EPA this week.

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

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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.