Energy Prices Are Moving Lower In The Early Going Friday After A Strong Week
Energy prices are moving lower in the early going Friday after a strong week in which fear of inflation and slowing demand both eased, while fears of supply disruptions returned. From a chart perspective, gasoline and diesel prices have returned into more neutral territory after failing to break near term resistance and are set up for another period of back and forth action – just like we saw yesterday with ULSD experiencing multiple 10 cent moves on the day.
The IEA disagreed with OPEC’s estimates for declining global fuel demand Wednesday, raising its oil consumption estimates, with consumers switching to oil-based products to supplement the electricity grid during the summer heat wave (and tight natural gas supplies) driving the increase and masking the “…relative weakness in other sectors…”. Of course, it’s typically not crude oil that’s being used to supplement electricity supplies, it’s some form of diesel whether it be known as Gasoil, fuel oil etc. which explains why we’ve seen ULSD prices react to movements in natural gas prices, while gasoline prices tend to go their own way.
The IEA increased its forecast for Russian oil output as buyers in some parts of the world are getting awfully creative to find ways around sanctions. Read here for an interesting story on a big gamble on old ships to carry out dangerous ship to ship transfers of Russian crude. Never doubt the ingenuity of an oil trader.
The IEA’s monthly report ended with a word of caution: “…with supply increasingly at risk to disruptions, another price rally cannot be excluded.” Read this Reuters note for more specifics on why European distillates are particularly vulnerable.
Speaking of disruptions, the storm system moving across the Atlantic didn’t turn into anything this week and the only other system on the NHC’s watch list is given just 10% odds of developing off the coast of Texas and Louisiana, although it is expected to bring heavy rains to the region over the weekend. We’re getting to the time of year where we can expect waves to move off the African coast every few days, and each of those waves has the chance to become a hurricane. Where those storms head will likely determine if this season is a nuisance or a disaster for energy supplies, with early forecasts suggesting Florida may be the storm magnet this year, which would be bade news for retirees, but good news for suppliers compared to the past 2 years of Louisiana landfalls that pummeled refinery row.
There are all sorts of new energy-related incentives in the new bill moving through congress. While electric vehicle incentives are capturing much of the attention, a lack of domestic battery production may limit the impact of those plans. Meanwhile, residential heat pumps may become the hot new item and lower carbon cement could end up making a larger impact on emissions than the slow moving changes in the transportation sector.
Massachusetts is jumping on the congressional climate bandwagon, passing a new bill this week that would join the California dream of banning sales of new gasoline and diesel powered vehicles in 2035, and designate some cities as fossil fuel free and ban natural gas in new construction. This comes just a few months after the state backed out of the proposed Transportation and Climate initiative that would have enforced a cap and trade style program on fuel suppliers.
Click here to download a PDF of today's TACenergy Market Talk.
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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.