Sigh Of Relief Rally Extends
The sigh of relief rally is extending for a second day in energy and equity markets as more signs appear that the damage done by the coronavirus may not be as widespread as once feared.
It’s still too early to say that the we’ve seen the worst of the selling, the virus is still spreading and it seems to be nearly as contagious as the fear it produces. For energy futures, the first test will be whether or not prices can hold onto these gains and end the week higher. If not, this rally looks like just a speed bump on the road to lower prices.
The API was said to show U.S. oil inventories dropped more than four million barrels last week, while gasoline stocks increased by 3.3 million barrels, and distillates drew by a rounding error of 141,000 barrels. Once again, RBOB is a bit of a head scratcher, leading the move higher in prices this morning despite its stats looking the weakest in the latest API headlines. The DOE’s weekly report is due out at its regular time this morning.
The EIA published a look back at the biodiesel blenders tax credit, predicting that the forward reinstatement of the $1/gallon subsidy should lead to substantial increases in both domestic production and imports of bio and renewable diesels over the next two years.
The FOMC is meeting today, and the CME’s FedWatch tool shows zero expectation for a rate cut at this meeting, with a 13 percent chance of a rate increase. The forward outlook for rates has changed notably this week with traders now pricing in 40 percent odds of at least one rate cut by the summer, up from 30 percent just a week ago, as more people bet the FED will need to step in to minimize the impact of the coronavirus.
Desperation setting in: Venezuela seems to be throwing a Hail Mary, floating the idea of turning its oil industry back over to the private sector to try and save its collapsing economy.
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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.
Click here to download a PDF of today's TACenergy Market Talk.
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.