A Heavy Round Of Selling Is Sweeping Across The Energy Markets To Start Tuesday’s Trading
A heavy round of selling is sweeping across the energy markets to start Tuesday’s trading, after a big reversal lower from multi-year highs in Monday’s session.
Nuclear negotiations with Iran are once again getting credit for the sell-off, even though if you get past the headlines it appears that the odds of an actual agreement that would allow more Iranian crude to reach the market is still a long way off.
It’s more likely that the pullback has more to do with traders (ie the trading programs that account for the bulk of trading activity daily) are taking another round of profits after several short term technical indicators moved deep into overbought territory following last week’s big rally. Both RBOB and ULSD contracts are still about 5-6 cents above their bullish trend-lines on the weekly charts, so it’s too soon to call this selloff anything more than a short term correction. Although a much bigger drop seems likely once supply concerns ease later in the year, it’s hard to see how sellers will be able to keep the upper hand near term as long as the threat of Russia using its oil weapon remains.
The pullback is also following reports that 3 large refineries, 1 on the East Coast and 2 on the Gulf coast, are restarting operations after having units knocked off-line last week during the winter storm.
The 14 cent drop from the Sunday night highs for the March ULSD contract has taken some of the sting out of the extreme backwardation in diesel markets, that’s been wreaking havoc on cash markets around the country as traders struggle to adjust to the big swings in the futures spreads. This has opened up some unusually large spreads between markets with 20+ cents separating diesel values in the Midwest where the seasonal demand doldrums are at their worst, compared to the Gulf & East coasts that are seeing heavy demand from winter weather and a strong export market.
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View AllThe 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.
Click here to download a PDF of today's TACenergy Market Talk.
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.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
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.