Crude Oil Futures Are Set To Make Second Consecutive Weekly Gains As Conflict Rages On In The Middle East
Crude oil futures are set to make second consecutive weekly gains as conflict rages on in the Middle East. The Israel-Hamas war will enter its second week tomorrow, and while the two belligerents don’t account for a substantial amount of oil production, the threat of this conflict pulling in large regional producers has kept the market spooked. While not a regional producer, the US made its presence known late Thursday after reportedly shooting down a trio of missiles fired from Yemen towards Israel.
The Department of Energy announced its plans to bring monthly solicitations for crude oil to replenish the Strategic Petroleum Reserve yesterday. The current administration touted the plan as a “good deal for taxpayers”, targeting $79 per barrel after selling its reserves at $95 per barrel back in 2022. Whether or not that price is realistic is yet to be seen, (prompt month WTI is trading above $90 this morning) as is whether or not this is another headfake like we saw back in August.
Diesel in the Midwest, particularly in the Group 3 market, traded +$1 over the NYMEX yesterday as suppliers struggle with fall harvest demand surge. The price blowout is expected to be short lived however, as ULSD deliverable early next week recently traded for a relatively modest $.20 premium to the screen.
The NOAA published its winter forecast yesterday, highlighting their anticipation for above average temperatures for the northern half of the contiguous United States. While this might not seem like news given the blistering summer that just ended, it's definitely welcomed information amongst those that still use heating oil during the winter, particularly in the Northeast. Distillate inventories remain precariously low in that region and a colder-than-average winter could be very costly for residents.
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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
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Week 47 - US DOE Inventory Recap
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View AllValues For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
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After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.