Energy Prices Score Big Technical Victory
Energy prices have scored a big technical victory so far this week, rallying more than 10% after reaching five month lows Sunday night, salvaging the sideways trading range that’s going on its sixth month. Some see this bounce as a sign of a major market bottom that will propel prices another 10-20% higher in the coming weeks, while others are shrugging it off as a dead cat bounce that just delays the inevitable drop as demand looks to be sliding as new shutdowns spread in the U.S. and Europe.
Taking some of the credit for the move today, Russia is said to be in talks domestically and with OPEC about a three month extension of production cuts, after saying for weeks they would open production back up despite the new lockdowns hitting Europe. The EIA this morning noted that OPEC’s oil revenues are expected to plummet to an 18 year low this year, as voluntary production cuts led by Saudi Arabia, combined with involuntary production cuts in Libya, Iran and Venezuela, multiplied by low prices hampered the cartel’s earnings.
U.S. equity markets also seem to be helping energy futures find a bid, moving sharply higher for a second day as the election winds down. We’ll know this time tomorrow whether or not there will be a clear outcome, and expect a bumpy ride for both equity and energy prices if it’s not.
While the East Coast has been grabbing most of the headlines, West Coast basis values have shot higher in the past week thanks to a rash of unplanned refinery issues. CARB #2 diesel values have reached an eight month high during the rally, while CARBOB gasoline values reached a two-month high. Looking back however, you can see this latest jump in LA Spot values pales in comparison to the chaos we’ve been accustomed to in previous years, another sign of how the COVID-demand slump is acting as a price buffer when supply disruptions happen.
Consolidation continues: St. Louis-based Bunge agreed to sell its Rotterdam refinery to Neste, but will continue to lease back the facility for the next three years. Starting in 2024, Neste will control operations at the plant – which is adjacent to its current refinery and already has a pipeline connection between the facilities.
Zombie storm: Hurricane Eta is a major Category 4 storm about to release devastating storm surge and rain on central America today, and then is expected to return to the Caribbean and regain tropical storm strength over the weekend. Given the warm waters in that region, and the path, it looks like Florida could end up taking a hit next week before this storm is done. Given everything else that’s happened this year, I wouldn’t rule it out.
Click here to download a PDF of today's TACenergy Market Talk.
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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.