Shooting War Vs Trade War Tug-Of-War Continues

Market TalkTuesday, May 14 2019
Bulls Have Taken Back Control Of Energy Markets

The shooting war vs trade war tug-of-war continues.

For the 2nd day in a row, attacks on Saudi oil infrastructure have energy futures rallying overnight. Monday saw the early gains wiped out and most contracts finish the day lower as tumbling stock markets over-rode concerns of a military conflict near the world’s most important choke-point for oil deliveries after 2 Saudi oil tankers were sabotaged Sunday. The new reports are that explosive-laden drones attacked 2 pipeline pumping stations in Saudi Arabia, forcing a temporary closure of the East-West pipeline system to assess damage. That pipeline system has a capacity of roughly 5 million barrels/day, and was built to offer an export alternative to shipping through the Strait of Hormuz.

Speaking of which, there are many more questions than answers surrounding Sunday’s sabotage attacks. It’s still unclear what exactly happened or how the ships were damaged, let alone who committed the acts. A Bloomberg note suggests that whatever it was, it’s minor compared to issues in the past that failed to stop shipping in the Strait of Hormuz, so we shouldn’t get too worked up by this somewhat mysterious event. Based on the 8 cent reversal we saw in refined products Monday, it seems the market tended to agree with that sentiment.

As for the trade-war, the tit-for-tat tariff cycle seems to be continuing for now, with the US preparing a new list of taxes to impose following China’s list released Monday. US Stock markets had their worst day since January following the announcement, but seem to have stabilized overnight as there are still plans for the US & Chinese presidents to meet at the upcoming G20 conference. Speaking of January, the chart below shows that there has been a clear increase in volatility over the past few trading sessions for both equity & energy prices, but we are still well-below the swings that we saw from November-January. The big question for May now seems to be if cooler heads will prevail in the two “wars” or if we’re destined to see another real spike in volatility soon.

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap