Energy Futures Starting 2nd Quarter On Strong Note
Energy futures are starting the 2nd quarter of 2019 on a strong note, aided by reports that OPEC production dropped to its lowest level in more than 3 years last month, and by US equity markets that are pointing to a strong open on the back of positive news from China. WTI is leading the charge, touching a fresh 4.5 month high at $60.92 overnight, while Brent and refined products are still holding below the highs set last week.
While global concerns on oil supply and economic activity may continue to dominate the headlines and price action in the new quarter, a pair of legal battles may have longer term impacts on US oil supplies. Over the weekend, a federal judge ruled the President’s order to open drilling in the Arctic was unlawful, following a new order issued to allow for the Keystone XL to be built after more than a decade of wrangling.
Saudi Aramco published its income for the first time ahead of a bond offering, listing net income last year north of $111 billion, and free cash flow of $86 Billion, dwarfing the world’s largest publicly held oil companies, although trailing many on a per-barrel basis given its heavy tax burden.
Baker Hughes reported a 6th straight week of declines for oil rigs in the US, making Q1 2019 the largest quarterly decline in 3 years for the rig count. Texas continues to lead the move lower, marking a 12th consecutive week of declines for the state’s rig count. The Dallas FED published its quarterly energy activity survey last week and noted that activity ticked up slightly in Q1, after dropping sharply during the price plunge of Q4, 2018. West Texas is rapidly transitioning from a shortage to an excess of pipeline takeaway capacity for oil, which combined with the recent price recovery could be enough to see the trend of lower rig counts come to an end in the next few weeks.
Money managers continued to jump on the spring break bandwagon, adding to net-long positions in WTI, Brent and RBOB contracts last week, while ULSD dropped to a net short position for the large speculative category of trader. Perhaps most notable in the changes was that RBOB net length broke above its 5-year seasonal range as of the data reported Friday, which is compiled as of last Tuesday, which means a large number of energy speculators got to experience the spring gasoline rollercoaster with a 15 cent drop in RBOB prices over the next 2 days. The funds’ reaction to those price swings in this week’s report may give a good indication of the staying power of this year’s spring rally as retail prices in several parts of the country approach or surpass $3/gallon.
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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.