Energy Futures Hover Near Multi-Month Highs
Energy futures continue to hover near multi-month highs, on the verge of another technical breakout to the upside, looking for the next catalyst to push prices on their next big move. Distillates are the exception to that rule however, as ULSD futures are ticking lower for a 6th straight session, although the sum total of the losses during that time are a fairly meaningless 3 cents/gallon.
It’s data deluge week, as in addition to the normal weekly reports, we’re also getting monthly outlooks form the DOE/EIA, OPEC and the IEA. That’s in addition to the slew of headlines that continue to come from the CERAWeek conference going on in Houston.
The API was said to report a draw in oil stocks of 2.6 million barrels last week, along with a 5.8 million barrel drop in gasoline stocks, while distillates were fairly flat, estimated to increase by less than 200,000 barrels. The DOE’s weekly report is due out at its regular time this morning. Recent swings in import/export flows have been key drivers of the weekly inventory levels, with the EIA highlighted in a new report this morning. That import/export flow highlights the latest STEO Monthly forecast from the EIA, in which the agency predicts the country’s transition from net importer to exporter in the next 2 years.
The EPA proposed new rules to allow E15 blends year-round, and to make a handful of reforms to RIN markets. The proposal will undergo a public comment period before becoming final. RIN values dropped on the news, and following a report that small refiners believe their exemptions to the RFS are legally “bulletproof”.
As for the RVP waiver that will allow E15 blends in the summer, meaning the EPA is going to allow more fuel to evaporate into the atmosphere in an effort to use more corn, that seems to be a clear victory for Ag groups, but it remains to be seen how the new ruling – if it’s finalized – will trickle down to the retail level. For example, in a state like Texas that does not allow the 1lb RVP waiver (more evaporation of fuel in the summer) with ethanol blends, E15 may still not be sold even though the federal ruling will allow it.
Speaking of state/federal EPA arguments: The newly confirmed head of the EPA is pushing ahead with new nationwide fuel economy standards after negotiations with California on their version of the plan broke down. The new “SAFE” fuel efficiency standards are intended to replace the “CAFE” standards that set lofty goals that many automakers felt were unattainable, famously highlighted by the cheating scandals at a handful in the past few years.
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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.