Energy Futures Are Slipping Back Into The Red To Start The Week After A Furious Friday
Energy futures are slipping back into the red to start the week after a furious Friday rally sent prices to a fresh round of 7 year highs. Reports that an invasion of Ukraine was imminent Friday afternoon sparked another big rally, while weekend diplomacy is getting credit for the pullback this morning.
The backwardation in diesel prices is holding near its highest level in 19 years and more terminal outages and tight allocations are being reported as physical supplies remain well below average for this time of year.
Baker Hughes reported a net increase of 17 oil rigs last week, the largest single week increase in 4 years. 13 of those rigs were added in Texas, with the Permian adding 7 and the Eagle Ford adding 5. It’s worth noting that the last time we saw an increase this large was the 2nd week of February 2018, which suggests perhaps the company does a reconciliation that may account for the large increase more than drilling companies suddenly breaking the labor log jam. If that theory is incorrect, then maybe this week’s data is the start of an accelerated pace of drilling with producers racing to take advantage of higher prices.
Money managers reduced their net length in the latest CFTC report releases Friday. That report was made from Tuesday’s trading data, suggesting that the big funds we selling modestly during the big move lower early last week, and that the huge rally later in the week may cause us to see a large increase in speculative positions in the next report.
Perhaps the most notable change in the CFTC reports over the past few weeks has been a spike in WTI open interest, which overtook Brent for open contracts for the first time in almost 2 years. WTI had been losing interest over the past several years as its delivery point in Cushing OK became less relevant as the US became a net exporter, and new competing contracts in the Houston area took market share. A rush of options activity seems to be bringing interest back to WTI, and now that football season is over, perhaps we’ll see even more big oil bets as the gamblers look for a new outlet.
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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.