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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.
Week 39 - US DOE Inventory Recap
Crude Oil Futures Are Leading The Energy Complex Higher This Morning With WTI Jumping 2% And Exchanging Hands Above The $92
Crude oil futures are leading the energy complex higher this morning with WTI jumping 2% and exchanging hands above the $92 so far today. Gasoline is rallying in sympathy, trading nearly 5 cents higher than yesterday’s settlement (+1.8%), while ULSD plays the laggard, staying just on the green side of breakeven.
The rally in crude oil prices seems significant when equities saw their worst day in months yesterday and the US Dollar has pushed to highs not seen since last year. Diverging market moves between energy futures and equities is typically viewed as a sign of a healthy energy market since it’s assumed that price direction is following fundamental cues rather than those of a more technical or algorithmic nature. It will be interesting to see how the money managers’ positions change on the CFTC’s Commitment of Traders report.
Invest AL91 continues to show signs of organization as it drifts west in the Atlantic. The National Oceanic and Atmospheric Administration gives it a 90% chance cyclonic development over the next 2 days, but most projections keep it out to sea with some showing it graze the Lesser Antilles. Tropical Storm Philippe is still hanging around and will likely make landfall in Puerto Rico as a Tropical Depression.
The American Petroleum Institute published their national inventory estimates yesterday afternoon, showing a ~1.6 million barrel build in US crude oil inventories, while gasoline and diesel stocks dropped 70,000 barrels and 1.7 million barrels, respectively. The Department of Energy’s official report is due out at its regular time this morning (9:30 CDT).
West Coast gasoline basis spiked yesterday as that side of the country grapples with refinery downtime and tight low RVP inventories heading into October. The P66 Wilmington and the PBF Torrance refineries are down for maintenance, on the heels of an unplanned flaring event at Chevron Los Angeles last Friday. LA CARBOB traded $1.87 over its NYMEX counterpart, and, judging by what happened last year, it may have higher to go.
WTI Prices Continue To Pull Back From The $90 Level It Breached Last Week For The First Time In Nearly A Year
Heating oil futures are leading the energy pack lower this morning, trading down over 2% so far to start the day. The prompt month RBOB contract is following suit, shaving off 1% in pre-market trading, while the American and European crude oil benchmarks trade ~.6% lower.
WTI prices continue to pull back from the $90 level it breached last week for the first time in nearly a year. The contrasting dynamics of Saudi and Russian supply metering versus soft demand outlook had energy markets whipsawing over the past couple weeks. While some still see a pathway to $100 oil, and beyond, we might be seeing high prices ‘fix’ themselves: US oil production is currently estimated (by the DOE) to be at 12.9 million barrels per day, the highest level we’ve seen since the Spring of 2020.
While initially sparking volatile market action, the Russian refined product export ban that was announced Friday has drifted from headlines so far this week, probably due to the fact that the restrictions won’t apply to a slew of distillate products, nor to one of the world’s largest energy consumers.
The EIA noted this morning the shift in Kuwaiti energy exports from crude oil to refined products. While this isn’t unexpected news, since we knew about the ramping up of production runs at the nation’s Al Zour refinery at the beginning of the year, it is a nice reminder that the global market isn’t as strapped for supply as we were in 2022.
Tropical storm Phillipe is still expected to stay out in the Atlantic for the rest of its organization, without strengthening into a hurricane. There is a system (AL91 Invest) following right behind it and while the NHC gives it a 70% chance of developing over the next week, it too looks to only be a threat to marine traffic and fish.
After dropping through its 5-, 10-, and 20-day moving averages over the last week, there isn’t much in the way on the daily ULSD charts to keep prices from dropping to the $3 level. However, even with the three days in a row of trading lower, HO is still on track for monthly gains, as it has been since June. Finishing lower than $3.10 for September would go a long way to ease prices off multi-month highs, but if that can’t be managed in the next four days, it will be up to October trading to decide if this rally has really run out of steam or if traders were just profit-taking this week.
From last week’s DOE report:
New Tropical Storm Formed Over the Weekend And Several More Refinery Upsets Reported
The energy rally lost its momentum last week, and we’re seeing chart support tested in early Monday trading as a result. ULSD is leading the move lower so far this morning and is threatening a break of its weekly trend-line around the $3.30 range. Prices are currently trading below that line, and if we see a settlement below that level the charts favor a push towards the $3 mark. There’s also about 7-cents of backwardation between the October and November contracts, so the technical pressure will only increase as we approach October’s expiration Friday.
For RBOB we’re seeing a test of the September lows around $2.55 this morning, with a break of that support setting up a 10-cent slide in short order, with a run at $2.25 looking likely as we move deeper into fall.
Money managers showed a mixed reaction to energy markets last week with large speculators adding to bets on higher prices in WTI, Brent and ULSD, while reducing their positions in RBOB and Gasoil. The net length held by money managers in WTI contracts reached its highest level since February of 2022 last week, while Brent saw its speculative length reach a 6-month high. The drop in gasoil positioning is noteworthy as it is counter-seasonal, whereas the decline in RBOB bets and increase in ULSD are more what we’d expect to see this time of year as driving activity slows and heating demand starts to increase.
Baker Hughes reported a decline of 8 oil rigs and 3 natural gas rigs last week, bringing the total to a fresh 19-month low. So far, the steady decline in drilling activity hasn’t impacted domestic oil production in the official numbers, although there’s plenty of noise relating to what the EIA classifies as oil vs condensate to make accurate historical comparisons challenging. The big question for the balance of the year is whether or not $90 oil brings drillers back to the rigs?
After Ophelia battered the East Coast over the weekend, Tropical Storm Philippe has formed in the Atlantic – the 12th named storm in the past 5 weeks - but is expected to hook north and east similar to what we saw Nigel do last week, and not threaten the US coast. There’s another storm system given 80% odds of developing in the next week in the same area, but early models suggest it too will stay out to sea. There’s another system being watched in the Gulf of Mexico, but it’s only given 10% odds of developing by the NHC.
There were several more refinery upsets reported over the past few days. An unplanned flaring event reported at Chevron’s Los Angeles area refinery late Friday promises to keep the West Coast basis rollercoaster rolling as we wind down the summer-RVP season, while upsets at Valero’s plant in Corpus Christi, another in a string of upsets at the P66 facility in Borger TX, and an unplanned shutdown of the Delek facility in Tyler TX have all failed to stir any buying interest. Of course, it seems like we can’t go an entire week without a reported upset at the beleaguered Marathon refinery in Texas City, with a coker unit at that facility tripping offline Friday.