Concerns That Energy Shortage Will Derail Global Economic Recovery
Petroleum futures are pulling back this morning, after setting fresh 7 year highs overnight. Concerns that the energy shortage in parts of the world is going to derail the global economic recovery are taking blame for a wave of “risk off” selling this morning that’s hitting both energy and equity markets. While the correlation between US energy and equity markets has been close to zero during the past few weeks, there is a clear tick higher in volatility in both asset classes which is as good a gauge as any other for the fear that’s creeping into the marketplace after an extended period of calm.
For anyone that remembers the “staycation” effect when gasoline prices surged north of $4 in 2008, and what happened to the economy over the following year, it’s easy to understand why the cost of natural gas in Europe quadrupling over the past 3 months, or coal prices reaching record highs in Asia, is a bit concerning.
The API reported inventory builds across the board Tuesday afternoon, which threw a bit of cold water on the runaway rally, although given that fresh highs were set overnight after the report, the market seems to not care too much about US stockpiles when Europe and Asia are struggling to make ends meet. The fact that domestic inventories are able to build even as substantial oil production and refining capacity remains offline following Hurricane Ida, proves once again the resilience of the US supply network, which is going to be leaned on perhaps more than ever to help alleviate the shortages elsewhere in the world.
Speaking of which, an EIA report Tuesday detailed how a change in China’s tax policy has reduced imports of some petroleum products, and exports of others, which may be adding to the supply bottlenecks being felt in many markets. The EIA’s weekly status report is due out at its normal time this morning, and following that report the agency will release its International Energy Outlook for the year. A sneak peek at that report released this morning forecasts that despite the rapid increase of net-zero carbon pledges, and steady growth in renewables, petroleum liquids are expected to remain the primary source of global energy for the next 30 years.
The Financial Times has an ongoing series on electric vehicles, and this Tuesday’s update on “how green is your Electric Car” gives one of the most concise, objective looks yet on the pros and cons of EVs– with the best visuals you’ve likely ever seen on this topic.
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.