Traders Got Lesson In The Spring Gasoline Rally
Traders got a lesson in the phenomenon known as the spring gasoline rally Friday as 6 cent losses sparked by the early “risk-off” selling across stock and commodity markets was essentially wiped out by days’ end, with nothing fundamentally to point to for the reversal. That momentum carried through the overnight session, with RBOB futures once again punching through the 200 day moving average (the resistance which had been given some credit for the selloff last week) and has reached fresh 4.5 month highs.
While the rest of the complex also saw a strong recover rally late in Friday afternoon’s trading, Oil and Diesel prices merely returned to the middle of their March trading ranges, and aren’t yet showing signs of being willing to join gasoline’s spring breakout rally.
Baker Hughes reported a drop in the total US Oil rig count for a 3rd straight week Friday. Texas saw a decline for a 9th straight week, and the state’s total dropped below 500 for the first time in a year. As the chart below shows, the Permian basin has accounted for more than half of the country’s total drilling rig count since the last price collapse, so as activity in TX slows, the national total goes along for the ride.
Money managers snapped a 9-week streak of increases in the Net-Long position (bets on higher prices) in Brent crude oil last week. Although the large-speculators increased their net long holdings in WTI for a 2nd week, (the CFTC data finally caught up from the govt. shutdown) both of the major oil contracts are seeing below-average length for this time of year. That lackluster participation by large funds could be a reason why the oil price rally can’t seem to sustain itself lately, or it could become a catalyst for the next push higher if the speculative money sitting on the sidelines decides it’s time to get back in the game.
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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.