Energy Markets Show Higher Stock Value Despite Recent Tariff Threats

Energy markets are ticking higher to start the week, after a strong Friday finish helped limit the damage of a 3rd consecutive weekly price drop for oil prices. Both energy and equity markets seem to be largely shrugging off the latest tariff tantrum promising 25% taxes on steel and aluminum imports to the US.

Basis values in the San Francisco Bay area continued to rally Friday as it appears that PBF’s Martinez refinery won’t be reopening anytime soon following the fire that broke out Feb 1. Local officials are using provisions under the county’s industrial safety ordinance to push the facility to do a root cause analysis of the fire before they can restart. Energy News Today is reporting that the analysis will include draining and purging all operating units at the refinery. That type of activity is likely to take weeks, not days, and will keep the region dependent on imported supplies as we head into spring.

Keep in mind that the neighboring Chevron refinery had to agree to a $550 million payout to the city of Richmond last year to avoid an official tax, and it seems likely that local officials will want to put their hands out to collect on PBF as well. Given the current challenged state of refinery economics, not to mention PBF’s positioning in vulnerable markets on the East and West Coasts and a challenging foray into the renewables arena, an event like this could well shutter the operation entirely whereas a major like Chevron is able to lean on its upstream cash flow to weather the storm.

Money managers were selling off crude oil contracts while making small increases in net length in RBOB and ULSD contracts leading up the last week’s tariff head-fakes. Since the weekly COT data is collected on Tuesday, its likely the report was skewed by some rapid unwinding of positions in the rollercoaster ride we saw early in the week. It’s also worth noting that the producer/merchant category of trader sold heavily into January’s diesel rally, as it appears refiners were happy to lock in diesel values that were elevated due to the cold snap and spike in heating demand it brought.

Baker Hughes reported an increase of 1 oil rig and 2 natural gas rigs drilling in the US last week, marking a 2nd consecutive increase for the oil patch after reaching a 3 year low at the end of January.

There are two brand new refineries that have been looming large over the Atlantic basin the past few years. This morning, the Dangote refinery in Nigeria (the world’s largest single-train facility at 650mb/day) reported they expect to reach full capacity for the first time ever in March. In the polar opposite position, Mexico’s President was forced to acknowledge that despite numerous claims about its new “state of the art” 340mb/day Dos Bocas refinery over the past several years, the plant is currently processing zero crude oil.

BP shares are rallying today after reports that Elliott Management had taken a sizeable stake in the company. You may remember Elliott from corporate raiding such as Cabela’s forced sale to Bass Pro or its more recent failed attempts to take over Southwest Airlines and Citgo. In the case of BP, it’s hard to say initially what changes Elliott will attempt to make, but based on today’s big price rally, either investors think there’s plenty to fix, or perhaps they just want to front run the activists.