Trade Deals And Output Cuts Pushing Petroleum Prices Higher

Market TalkMonday, Dec 3 2018
DOE Week 48 - 2018 Report

A flurry of headlines on trade deals and output cuts is pushing petroleum prices sharply higher to start the week. Refined products are up more than a nickel at the moment, after trading up nearly 8 cents overnight as both energy and equity markets are finding reasons to rally. Here’s are the highlights:

China & US taking a break from trade tantrums: Bullish economic activity, reduces the risk of recession & the drop in demand that would come with it.

Russia & OPEC agree to extend supply cuts. Bullish…at least until they announce the details, which haven’t been agreed to yet.

Qatar leaving OPEC: Neutral? This could be a bigger story in natural gas markets given Qatar’s status, but for now doesn’t seem as though it will impact supplies.

Canada is imposing temporary output cuts in Alberta: Any output cut is bullish oil prices, but this reaction to pipeline bottlenecks may have more impact on US refinery margins than it does on outright prices as the extreme discounts in WCS has given a huge advantage to any plants with access to those distressed barrels.

New congress, new threats to North American Trade? Neutral for now. It’s impossible to say how the negotiations in congress will turn out. Oil & refined product flows between the US, Mexico and Canada have been increasing over the past decade so the pressure will be high to get a deal done.

Baker Hughes Rig Count: 2 more oil rigs put to work last week, marking a 5th consecutive month of increases. The price drop in the past 2 months suggests we may see rig counts level off or begin to dip early in 2019. Neutral. One consequence of record high US Oil production? Sellers in W. Texas are actually having to pay people to take their natural gas.

Commitment of traders: WTI and RBOB snapped their streak of money manager liquidations (it’s probably no coincidence this happened the same week that both contracts had a weekly gain for the first time in 2 months) while Brent and ULSD continued to see reduced speculative bets on higher prices. Bullish. Fund liquidation was a major theme during the fall sell-off. Now that those large speculators presumably have dry powder, they could easily push prices higher should they choose to begin buying again.

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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.