Another Attack On Oil Tankers
Another attack on oil tankers has energy markets moving modestly higher this morning, but the reaction seems to be muted thanks to a healthy dose of skepticism, along with a bearish IEA report.
It would be just as easy to say that oil prices are up nearly $1/barrel because DJIA futures up nearly 300 points this morning, thanks to fresh optimism over US/China trade talks. If anything the lack of reaction to the latest attack on oil shippers is a bigger story than the attack itself.
Details on the attack are scarce, with some reports suggesting it was rockets, others saying it was missiles. Considering that the reports are coming from Iranian officials, there seems to be more than a little skepticism, but at some point I wouldn’t be surprised to see prices rally as this event off the Saudi coast could be setting the stage for further Iranian retaliation.
The IEA reduced its global oil demand forecasts for 2019 and 2020 in its latest monthly report, and suggested that rising non-OPEC production should keep downward pressure on prices. The report also highlighted the impressive recovery of Saudi production after last month’s attacks, and suggested that the world now has “a big insurance policy” thanks to healthy inventories of oil. The lack of reaction to today’s news seems to be another sign of that policy in action.
Want another sign of the futures market’s lethargy? ULSD futures are trading higher for a 7th straight session, but are only up 7 cents total over that span. For a market that regularly sees that size of a price move in a single day, this lack of enthusiasm is notable.
California gasoline prices are still holding some 80 cents/gallon above most other US regions, but help appears to be on the way as the state fuel reports showed a large increase in refinery output last week.
Click here to download a PDF of today's TACenergy Market Talk Charts.
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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.
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.