A Supply Problem Today Will Create A Demand Problem Tomorrow
A supply problem today will create a demand problem tomorrow. That seems to be the theme for petroleum markets around the world as we experience another volatile week of trading.
Energy futures are moving higher again to start Wednesday session after weathering a wave of Selling Tuesday. A bearish outlook for the global economy got much of the credit for yesterday’s big selloff in energy contracts, even though equity markets seemed to largely shrug off the IMF’s report.
Both technical and fundamental factors are favoring stronger diesel prices near term, while there are some warning signs flashing on the gasoline chart as we reach the time of year when those prices often top out.
ULSD futures are looking poised to make another run at the $4 mark, after bouncing 17 cents off of Tuesday’s low. RBOB futures meanwhile have several bearish indicators on the charts and threatening to make a run back below $3 if they can’t find some upward momentum in the next couple of days.
The forward curve charts below show that despite Tuesday’s big pullback, prompt values are still up over the past week, while forward values have actually moved lower for ULSD and Crude Oil, which seems to be a clear reflection of the short supply today, shrinking demand tomorrow phenomenon.
The API was said to show draws in crude oil and diesel inventories of 4.5 million and 1.6 million barrels respectively, while gasoline stocks increased by almost 3 million barrels last week. That report seems to help explain why WTI and ULSD futures are outpacing RBOB so far this morning. The DOE’s weekly report is due out at its regular time since Good Friday was not a US Federal holiday.
A report that Russia’s crude shipments dropped 25% in one week was a harsh reminder that we may not have seen the worst of the supply crunch as deals struck before the invasion were still being honored over the past two months.
Switzerland may be opening a door to a partial solution to the Russian export problem this week, keeping its well-known neutrality and secrecy intact. The Swiss agency in charge of monitoring EU sanctions said it promises to make its rulings on Russian purchases that may fit through the “strictly necessary” loophole strictly confidential.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.
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.