Energy Markets Are Starting July Off On A Strong Note

Energy markets are starting July off on a strong note, with refined products leading the move up 2-3 cents in the early going as the first major hurricane threat of the year emerges.

We got a glimpse at what record-warm water temperatures can do for a storm system as Beryl went from an unnamed storm to a category 4 hurricane over the weekend, something that’s only happened 3 times in history in the Atlantic basin, and never before September.

Forecast models over the weekend suggested the storm would continue west over Mexico, but new models this morning show there’s a decent chance that the storm will hook north towards refinery row along the TX/LA coast. While the system will lose most of its strength as it moves over Mexico, there will still be plenty of time and warm water to regain hurricane status if it does move north over the Gulf of Mexico this upcoming weekend. The current models suggest that if the storm does come north, it will start hitting the US coast around next Wednesday July 9th.

96L is following in the wake of Beryl and is given 60% odds of being named. Early models have that storm heading on a similar path to Beryl, with a big question mark on whether or not it will swing north next week. Meanwhile, the system that was given low odds of being named in the SW Gulf of Mexico last week became tropical depression Chris and is moving over the eastern coast of Mexico this morning and isn’t a threat. Both Beryl and 96L are currently set to pass nearly directly overhead of Mexico’s “new” but not yet operating Dos Bocas refinery. Given the direction of the storms moving out over water, not inland, there’s not a major threat of storm surge damaging the facility, but it may provide a convenient excuse for the government that continues to do its best Baghdad Bob impression by insisting the facility will be reaching full rates any minute now at least a dozen times over the past couple of years.

Money managers continue to unwind their short-bets-gone wrong following last month’s OPEC announcement, and were also adding new long positions last week, making a meaningful increase in net length in most energy contracts last week. The exception to the new bullish behavior was the ULSD contract, which was the only one of the big 5 petroleum contracts to see a reduction in length and new shorts added, pushing the net short position (bets on lower prices) to the largest level since the COVID summer 4 years ago.

Baker Hughes reported a decrease of 6 oil rigs last week, while natural gas rigs declined by 1. The total rig counts of 479 and 97 for oil and natural gas respectively are the lowest active totals since late 2021.

Big news from the Supreme court Friday as a ruling overturned the so-called “Chevron deference” that allowed federal agencies to use their own interpretation of congressional statutes when setting regulations. The new ruling sets the stage for numerous lawsuits challenging rulings by the EPA, FERC and other federal agencies and sets a higher bar to clear to set or enforce regulations.

The results of the Citgo auction are expected to be delayed at least a couple of months in a hearing tomorrow according to a Reuters report, as multiple “actionable” bids all fell short of fully covering the debts the auction is intended to pay off.

Phillips 66 reported an upset at an FCC unit at its Sweeny TX refinery and Total reported a leak in a crude unit at its Port Arthur refinery on Friday.

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