In this week's Market Movers Americas, presented by Courtney Love:
* Coronavirus surge reverses rally in refined products
* E&Ps see split views on US Gulf upstream auction
* USGC diesel supported amid continued stock draw
* Pandemic caps clean tanker freight at breakeven earnings
In this week's Market Movers: Increasing coronavirus cases create uncertainty around demand for refined products; the coming Biden Administration brings uncertainty as companies fear the halt of new drilling on federal lands; pandemic lockdowns cause Americas shipowners to watch the potential revival of floating storage interest for middle distillates; and US Gulf Coast diesel markets remain supported as regional stock drawdowns continue.
Starting off …
Market watchers this week will be paying close attention to the global rise in coronavirus cases, and the reaction from refiners to any further reduction in demand. The oil complex got a lift last week from some positive news on the coronavirus vaccine front, but the move higher was stalled as cases increased, specifically in Europe and the United States. The rise has already prompted some government restrictions on business hours, and stricter lockdowns could be put in place, pushing demand for gasoline, jet fuel and diesel lower.
If refined products demand fails to recover, or falls again, refiners will likely need to cut runs, or close plants, to protect margins. S&P Global Platts Analytics does not see US oil demand returning to pre-coronavirus levels until 2022.
In this week's US Gulf of Mexico lease sale, E&P companies may be of two minds. The auction will offer hundreds of blocks in both deep and shallow waters across the US Gulf – mainly offshore Louisiana, Texas and a slice of Mississippi and Alabama. Participants may want to pick up some new offshore leases, fearing that the incoming and less oil-friendly Biden administration may keep his promise to halt new drilling on federal lands, which includes millions of acres in the US Gulf. Other companies may simply look to shore up their existing leases and seek to accumulate more acreage near their producing platforms.
Uncertainty over the intentions of the Biden administration, coupled with cloudiness on oil demand recovery from the pandemic, could prompt some operators to shy away from this sale and wait until the next auction in March.
Turning to diesel markets …
US Gulf Coast diesel markets have held support in November as regional distillate stock drawdowns continued last week, according to the US Energy Information Administration. Averaging a $2.59/gal discount to prompt NYMEX ULSD futures this month as of Nov. 12, the US Gulf Coast pipeline ULSD differential peaked at minus $1.25/gal on Nov. 6, its strongest assessment since September 2017.
Heightened values coincided with the US EIA announcing it estimated PADD 3 distillate stocks drew 974,000 barrels to just over 42.1 million barrels the week ended Nov. 6.This figure marks a continued decline from the all-time high of 56.1 million barrels reported in the second half of August, a trend continued amid limited refinery capacity during an active hurricane season.
Meanwhile, in the tanker market …
Pandemic demand destruction and a counter-seasonal destocking cycle during the fourth quarter will depress US Gulf Coast loading clean tanker freight this week. Renewed lockdowns across the Atlantic have Americas shipowners closely watching the potential revival of floating storage interest for middle distillates. That would prompt tonnage ballasting away to Europe rather than to the USGC after delivering gasoline on the USAC and shorten tonnage here. But for now, clean tanker freight is set to continue the breakeven earnings rut at best.
For more on all the issues affecting commodity markets, check out Platts Live, a new section of our website that has been created for our customers to continue engaging with us, and each other. You can find it at the address displayed on your screen.
Thank you for kicking off your Monday with us and have a great week ahead.