Energy Futures Slipping Modestly Lower

Market TalkThursday, Jan 24 2019
Petroleum Complex Selling Off

Energy futures are slipping modestly lower to start Thursday’s session, weighed down by reports of more large inventory builds in the US and new concerns over the Chinese economy (the largest energy importer in the world) slowing down.

Those bearish influences seem to be outweighing new turmoil in Venezuela, although prices have had a hard time making up their mind this week, and continue to bounce back and forth within their recent trading range, so a mid-day reversal would not be surprising.

The API was said to show large inventory builds across the board last week of more than 6.5 million barrels of crude oil, 3.6 million barrels of gasoline, and 2.5 million barrels of distillates. Futures prices had been having a strong afternoon Wednesday, bouncing again off early morning lows, but were knocked back down after the API data was released.

The Venezuelan saga took a dramatic turn Wednesday as a new self-appointed President was recognized by several foreign countries, including the US, and large demonstrations broke out opposing the current regime. Even though Venezuela has more proven oil reserves than any country on the planet, oil markets seemed to shrug off the news.

It’s certainly possible that an attempt at regime change could be bullish near-term as it puts the country’s last million barrels/day of production at risk, but it could be bearish long term if a more competent government can restore production to previous levels near 3 million barrels/day.

Short term it’s US Gulf Coast refiners that could see the biggest impact from a drop in Venezuelan crude exports, as those heavy barrels have few natural replacements, and could mean either paying a hefty premium for an ideal replacement, or having to reduce run rates if one can’t be found.

Speaking of Gulf Coast Refiners, spot markets have been behaving as though there’s suddenly a shortage of products coming from the US refining hub. Both gasoline and diesel basis values for Gulf Coast origins are up a nickel or more in the past few weeks suggesting that there’s either been a healthy export demand to offset lackluster domestic consumption, large reductions in refinery runs, or perhaps both. We’ll find out which it is at 11am central when the DOE’s weekly status report is released.

In addition to the normal weekly report, the DOE/EIA is also releasing its annual energy outlook later this morning. No surprise here, the report is reported to project growing domestic production for Oil, Natural Gas & Renewables in the coming year.

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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.