Drone Attacks on Saudi Arabian Oil Infrastructure Increases Prices
When news broke Saturday of coordinated drone attacks on Saudi Arabian oil infrastructure that shuttered nearly half of the country’s production, the question wasn’t if prices would move higher, it was whether or not the increases would be record-breaking.
Brent crude led the initial surge when trading resumed Sunday night, trading up nearly $12/barrel in the early moments, a 19.5% increase – marking the largest single day rally in the history of that contract. RBOB and ULSD futures saw similar price spikes in the opening seconds of overnight trading as trading algorithms raced humans to buy, with both contracts briefly trading up more than 20 cents before cutting those gains in half later in the evening.
Prices have rallied again off their evening lows after the US accused Iran of launching both missiles and drones in Saturday’s attack, a new revelation that combined with strong words from the president suggests a US response may become inevitable.
There are many more questions that need to be answered before we’ll see where prices will end up. Perhaps the 2 most important this week are how quickly the Saudi’s can bring production online – this is where their previous production cuts may prove valuable as it could provide a cushion, depending on the logistics puzzle of returning those barrels to the market – and what the response will be both from the Saudi’s and the US.
From a technical perspective, the May highs around $73 for Brent and $64 for WTI look to be the natural resistance layers after the early overnight rally stalled out in that vicinity. If Saudi output can’t come back online, or if a shooting war with Iran breaks out, those resistance levels may prove to be only a speed bump. At this point however, the global overhang of supply is acting as a buffer. Just think of what an attack like this would have done 5 years ago when prices were still north of $100/barrel.
Some hedge funds are likely patting themselves on the backs this morning as the money-manager category saw healthy increases in the net-long positions held in energy contracts last week – prior to the Saudi story making most other energy news temporarily irrelevant.
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Gasoline 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.