Energy Prices Continue Their Recovery Rally After A Big Selloff Monday Morning Was Largely Erased In The Afternoon
Energy prices continue their recovery rally after a big selloff Monday morning was largely erased in the afternoon. Diesel prices once again continue to steal the show as the market seems to be dealing with the realization that a demand slowdown is tomorrow’s problem, and today there’s still not enough supply to go around.
The May diesel contract is smashing records for the steepest backwardation on record as it trades 51 cents above the June contract with less than 4 days until expiration. Those huge swings in time spreads continue to wreak havoc on US cash markets, with markets trading vs June seeing big premiums while some of those still trading vs May are starting to see hefty discount. The exception to that is the NYH which has cash prices still trading nearly 20 cents above May futures as the region slogs through the lowest inventory levels in history.
The Chicago market meanwhile is facing the opposite situation, trading nearly 60 cents below NYH prices as inventories swell thanks to big refining margins and weak spring demand. Theoretically at least long haul trucks could move from the eastern fringe of Chicago-based markets to take advantage of that arbitrage window, but as we’ve seen over the past 18 months, the shortage of drivers makes that move less likely.
While there was a modest pullback in biodiesel prices and their associated RINs after Indonesia said it was “only” banning processed palm oil exports, not all of them, a Bloomberg article highlights why the shortage of oils is going to lead to another spike in grocery prices. The EPA meanwhile has been compelled by the courts to finalize its 2020-2022 RFS obligations, just 6-30 months behind the schedule set out in the law.
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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.
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.