Energy Futures Are Taking A Breather After Another Strong Day Wednesday
Energy futures are taking a breather after another strong day Wednesday that saw diesel prices trade north of $2.61 for the first time since October 2014, while WTI briefly traded north of $83 as US crude oil inventories dropped to a 3 year low. For a 2nd straight week, large builds in refined product inventories did little to slow the rally, as the market continues to act like the winter demand doldrums driving those increased stocks will soon be put in the rearview mirror.
Want a very simple reason diesel prices are trading at 7 year highs? Total US Diesel stocks started the year 10 million barrels below where they started the year in 2020, 20 million barrels lower than their 5 year seasonal average, and 35 million barrels below where they started off a year ago. You’d never guess that diesel stocks nationwide are far below average by looking at rack prices across most of the Gulf Coast, Midwest and Southwestern US as spot/rack spreads have collapsed, and in several cases are offered at multi-year lows as regional suppliers struggle to deal with a sudden glut of supply in markets that were extremely tight just 2 months ago.
RINs saw their first large sell-off in nearly 6 weeks after yet another mysterious Reuters exclusive citing unnamed sources suggesting the White House is considering yet another change to RVOs as pressure builds over higher fuel prices, and the environmental arguments for more ethanol continue to wane.
Rain, Snow or Ice? That’s the big question for millions of people along the east coast heading into the weekend with another winter storm sweeping across a large portion of the country. The difference in a few degrees may make a huge difference between an inconvenient rain storm and a crippling shut down as cold temperatures follow close behind the precipitation. There aren’t many refineries in the current path of the storm, but we are likely to see terminal disruptions from Tennessee to the Carolinas as several markets that aren’t used to seeing extended temperatures below freezing are forecast to do so over the next few days.
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View AllThe 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.
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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.