Tropical Storm Philippe Looks Set To Hit The Coast Of Maine Sunday

Energy prices are trying to find a floor this morning after the worst weekly selloff in the past 6 months. ULSD futures have seen the most dramatic moves this week, dropping more than 50 cents from a high of $3.3464 Monday to a low of $2.8336 overnight before bouncing nearly a dime off those lows this morning. The big question now is whether today’s rally is just a dead cat bounce, or if the liquidation is over. Weekly charts suggest there’s still a good chance we could see diesel prices make a move to the July lows around $2.50 if we don’t see this recovery take back the $3 mark. 

It’s widely expected that this week’s pullback included a fair amount of hedge fund liquidation (aka clowns exiting the Volkswagen) after 3 months of money managers adding to their bets on higher oil and diesel prices. Given that we saw back to back 15 cent drops in ULSD after the CFTC data was compiled Tuesday however, we won’t know the full effect of hedge fund liquidations until next Friday.  

How’d that work out for you? Russia has already lifted its export restrictions on diesel, allowing 50% of domestically produced fuels to be sent overseas. Given that prices are down roughly 60 cents/gallon since that announcement a few weeks ago, it sure doesn’t seem like the plan had its intended effect.  

Good news is bad news: The overnight rally hit a bit of a wall after the September jobs report showed strong employment growth that far outpaced most predictions. September payrolls were estimated to increase by 336,000 last month, while the July and August estimates were revised higher by 119,000 jobs. The official unemployment rate held steady at 3.8%, while the U-6 rate dipped to 7%. Stock futures sold off following the report, and refined products pulled back a couple of cents briefly, as this report seems to suggest the FED will have more ammunition to support its higher for longer interest rate battle plan.

Trouble in Corpus Christi: All 3 major refiners in the area have reported upsets over the past week. The upsets started with a power outage at Citgo’s East plant then yesterday FHR reported a leak in a Cumene unit with unknown impacts on operations, and then Valero reported a fire in a hydro treating unit at its facility overnight. It’s still unclear what impacts any of the 3 events are having on operations, but allocations along the Austin, San Antonio and DFW corridor supplied from those facilities are a good possibility.  

Tropical Storm Philippe looks set to hit the coast of Maine Sunday, with the terminal and port in Searsport looking like they might take a direct hit. The good news is this storm is only expected to have sustained winds in the 40-50mph range, and should not be a major disruptor although local power outages and flooding are certainly possible. The busier ports to the south like Portland and Boston “should” be unaffected beyond some temporary vessel restrictions as the storm passes. Perhaps the biggest impact will be another slow demand weekend for the region that’s seen several weeks of heavy rain hamper the annual migration of leaf peepers. 

Next up the NHC is tracking another system off the coast of Africa with 50% odds of being named next week, but the location of that development suggests it would be a fish storm that won’t threaten the US. 

Big Deal. Exxon is reportedly buying Pioneer Resources in a deal valued around $60 billion, which would be its biggest acquisition since buying Mobil 25 years ago. The acquisition is the latest sign that the oil majors have money to spend, see long term profits in the Permian, but are still reluctant to push new drilling rigs. 

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