Energy Futures Pulled Back From Multi-Year Highs Set In Tuesday's Session

Market TalkWednesday, Oct 27 2021
Pivotal Week For Price Action

Energy futures pulled back from multi-year highs set in Tuesday’s session as inventory builds and bad weather both appear to be dampening the bullish enthusiasm. Although we’ve seen several similar short-lived pullbacks over the past few weeks, charts are showing signs of a potential rounding top, that could mean sharply lower prices in the weeks ahead if we don’t see a bounce in the next few days.  Of course, it’s too soon to make that call, and we’ll need to see another pullback of 5% or more before the bullish trend can be called broken.

The pullback in futures didn’t get moving until around midnight, well after the API reported its inventory levels for the week Tuesday afternoon, and yet those stock builds are getting some of the credit for today’s selling. Based on the timing of the pullback, it seems like that part of the selling was caused by the realization that even though there were numerous refinery hiccups on the West Coast, and multiple power outages at terminals on the East Coast, the severe weather sweeping the country this week is ultimately likely to have a more negative impact on fuel demand than supply. 

Zombie Storm?  The NHC is giving 40% odds that this Nor’easter could develop into a named storm after moving off the US Coast later this week. Fortunately, it does not appear that this storm will come back to haunt the coast on Halloween as the path keeps it moving east and away from shore…for now.

The API reported inventory builds across the board last week, with crude oil stocks up 2.3 million barrels, diesel up just under 1 million barrels, and gasoline up by about ½ million. The EIA’s weekly report is expected at 9:30 this morning. One interesting note from the API report, even though total US crude stocks have been steadily building over the past month, stocks at the Cushing OK hub (which is the delivery point for the WTI futures contract) continue to decline.   This phenomenon could create a scenario where the short squeeze in futures drives WTI sharply higher, even while physical markets elsewhere aren’t feeling the squeeze.  Long term, this may continue to drive liquidity to the Houston-based contracts that have been gaining popularity in recent years.   

Meanwhile, the EIA’s winter fuels outlook is predicting higher expenditures for all heating fuels this winter as prices for many energy contracts are already at multi-year highs even before the first rounds of cold weather start to hit parts of the country this week. The report also highlights how the pull from overseas is contributing to tighter than average supplies. (Charts below)

Looking for a reason to buy this latest dip in prices?  Saudi Aramco warned that spare capacity is rapidly dwindling, suggesting it’s unlikely that OPEC changes its resupply stance when they meet next week. 

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Market Talk Update 10.27.2021

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Market TalkTuesday, Jun 18 2024

Prices Moving Higher Today As Market Prepares For Juneteenth Holiday

Refined products are ticking higher for a 2nd day, with RBOB gasoline futures hitting their highest levels of the month at $2.46 overnight, while WTI climbed back above the $80 mark for the first time in 3 weeks.

Markets will be mostly closed tomorrow for the Juneteenth holiday. Spot markets won’t be assessed so most U.S. traders will be taking the day off, even though Nymex contracts will trade in the morning. While rack prices can always change, expect most to stay static tonight through Thursday.

Risk-taking appears to be back in style to start the week, with the S&P 500 and Nasdaq both reaching fresh record highs as big tech stocks continue to lead the way, while the DJIA bellwether index remains well off of the record high it set a month ago. The correlation between daily price moves in energy and equity markets has been weak for most of the year, but the enthusiasm of broad buying across asset classes so far this week has the markings of a classic risk-on rally, although it’s noteworthy the moves across the board are modest, suggesting the exuberance may be slightly less irrational than it was during the dot com bubble. We shall see.

While the still unnamed storm in the SW Gulf of Mexico won’t be a direct threat to the U.S. coastlines, it is a very large system that’s bringing rain to large parts of Texas (even DFW is expected to get thunderstorms from this system) and coastal flood warnings are in effect across the entire coastline of the state, stretching east into Louisiana.

There is a 2nd potential system the NHC gives 20% odds of developing in the same area as the current “Potential Cyclone” over the next week, while the other disturbance near the Bahamas is given 20% odds of being named as it heads towards the SE U.S. coast.

Ukraine’s drones continue to hit Russian energy assets, with a fuel export facility at the Azov seaport set ablaze overnight. Those attacks come amidst Ukrainian forces repelling Russia’s latest offensive near Kharkiv now that U.S. weapons have finally arrived, forcing the Russian president to float new peace options and visit military powerhouse North Korea to purchase more arms.

The CFTC reached a $55 million settlement with Trafigura over 3 separate charges the trading house A) manipulated gasoline markets by “misappropriating” material information from a counterparty in Mexico (not named, but believed to be Pemex), B) gamed the Platts Window to boost a trading position in 2017, C) coerced employees into not cooperating with investigations into the company’s manipulative practices by CFTC and other law enforcement.

Trafigura did not admit fault as part of the settlement, but did state the company had “voluntarily undertaken significant steps to enhance its compliance program…” For anyone who watched the games being played in the Platts window over the past two decades, it seems they may have got off easy. This latest settlement comes just a couple of months after the company was forced to pay $127 million in fines over bribery charges and makes you wonder if there are more charges to come.

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Market TalkMonday, Jun 17 2024

CFTC Commitment Of Traders Report Confirmed Short Covering Was Pushing Up Pricing

It’s a quiet start to the week for energy contracts with modest gains of around a penny in the early going for refined products, while crude oil contracts are up less than 50 cents/barrel.

Houthi Rebels continue to attack ships transiting the Red Sea, with the U.S. Navy forced to rescue the crew from 2 different cargo ships that were struck over the past week.

China’s refineries slowed their run rates in May as planned maintenance and weak margins were both cited as contributing to a pullback from the world’s largest oil importer.

The CFTC’s commitment of traders report Friday confirmed that short covering by money managers was most certainly pushing up prices the week prior. WTI saw nearly half of its large speculative short positions bought back in just 1 week, while Brent’s multi-year high short bets were cut by 20%. In total, more than 62,000 crude contracts and 20,000 diesel contracts were repurchased after funds realized their bet that prices would continue sliding after they’d already hit multi-month lows was a mistake. The unwinding of the big speculators’ bets on lower oil prices will no doubt thrill the Saudi Arabian oil minister who famously threatened the “gamblers” back in 2020.

The National Hurricane Center is tracking 2 potential storm systems this week, one in the SW Gulf of Mexico is now given 70% odds of being named, but is expected to move inland over Mexico and not bring a major threat, but will bring thunderstorms to the U.S. Gulf Coast this week. The other system is only given 30% odds of development off of the coast of Georgia or South Carolina and doesn’t appear to be a threat to energy infrastructure.

The EIA published its annual U.S. refining capacity report Friday, which shows operating facilities as of January 1. It finally caught up with the Beaumont facility expansion completed more than 15 months ago, marking the largest growth in U.S. capacity in nearly a decade. Total operable capacity is still below the peak set in 2019 and is expected to drop further as the P66 Rodeo facility was converted this year, and the Lyondell Houston Refinery is once again expected to shut its doors at the end of the year. Since the government’s report is so far delayed, perhaps the most interesting part is the listing of all refineries that have closed since 1990.

Total reported 24 hours of flaring at its Port Arthur, TX refinery over the weekend. The only unit mentioned as a Flare Gas Recovery system so it appears the event won’t have a major impact on operations.

Baker Hughes reported 4 more oil rigs were taken offline in the U.S. last week, bringing the total count to a 2.5-year low at 488. Natural gas rigs were unchanged on the week at 98, the lowest total since October 2021.

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Market TalkFriday, Jun 14 2024

ULSD Futures Leading The Energy Markets Recovery Rally Today With 6 Week High

The recovery rally continues in energy markets with ULSD futures leading the way reaching a 6 week high this morning. If you were one of the money managers who decided to jump on the short-selling bandwagon at the start of June, you’re now underwater by around $5/barrel for crude oil contracts, and 25 cents/gallon for diesel contracts, which appears to be adding upward pressure to the market as that hot money heads for the exits, and is forced to buy out of their losing bets.

The recovery rally in refined products hasn’t done much to help out refiners that are still looking at their worst summer margins since the COVID lockdowns. The margin outlook is even worse for refiners in other parts of the world, particularly in Asia which is dealing with a glut of supply due to a rush of capacity additions in the past 2 years. Singapore announced this week that it was offering carbon tax rebates for its refiners to try and keep them afloat and able to compete with their new competition from China and Kuwait.

The enemy of my enemy: The American Farm Bureau and Corn Growers associations joined the American Petroleum Institute in a lawsuit Thursday challenging the EPA’s vehicle emissions standards. After the Ag and Oil lobbies have spent decades competing with each other for tax incentives and mandates on ethanol and biodiesel blends, they’ve found common ground in fighting the threat of EVs on their market share, with farmers providing the logical argument that rural communities [and tractors] aren’t conducive to EV use. The Renewable Fuel Association meanwhile is promoting its solution: Plug-in electric hybrid flex-fuel vehicles, or PHEFFVs for not-so-short.

The NHC is now giving 50% odds of development for the storm system brewing off of Mexico’s eastern coastline, but even if that system is named it looks like it will head west over land before threatening the U.S. The other system that threatened Florida this week is now making its way up the East Coast, but won’t be a major storm. Florida is still dealing with flash flooding, but so far there are no reports of terminal outages or port disruptions.

Click here to download a PDF of today's TACenergy Market Talk