Energy Futures Are Back On The March Higher To Start Friday’s Trading
Energy futures are back on the march higher to start Friday’s trading, and have now wiped out the heavy losses from earlier in the week. Gasoline futures are back on track for an 8th straight week of gains if the current levels hold today, while ULSD needs to add another penny to continue its winning streak.
Plummeting COVID counts are providing plenty of demand optimism, while tensions around Ukraine keep supply shortages at the top of mind, and reality is starting to sink it that a nuclear deal with Iran, which would allow 1 million barrels/day or more of oil back onto the world market, is a long shot.
The January CPI release Thursday sent shockwaves through markets around the world as US inflation reached a 40 year high and may keep volatility elevated near term.
Before the CPI reading, the CME’s FedWatch was showing a 33% probability of a 50 point rate hike at the March FOMC meeting, and that spiked to 93% after the report as traders are now convinced that the FED must make its largest single increase since 2000 to try and get on top of runaway inflation.
The report created some rollercoaster trading for energy futures, with refined products giving up their overnight gains in just a few minutes after the report, only to rally a nickel or more later in the morning, and then fall back again in the afternoon as the sell-off in equity markets started picking up steam. Over the past month, energy and equity markets have moved in opposite directions more often than not (see the correlation chart below) in large part due to concerns over Ukraine that could be bearish for stocks and bullish for energy, but there’s a good chance we could see the two move more in tandem as we did Thursday, whenever FED expectations take the lead.
If you’re not sure what’s a more confusing concept, crypto currency or carbon credits, you’ll find the cadre creating contracts that combines the two concerning. Carbon backed crypto contracts seem to be increasing faster than fuel prices, giving cons and criminals a whole new field (or rainforest) to express their creativity.
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.