Energy Prices Were On The Move Higher To Start Wednesday’s Trading
Energy prices were on the move higher to start Wednesday’s trading despite increases in weekly inventory levels after another attempted sell-off proved short lived, and buyers seem to be quite content to buy the dip.
A late day rally cut Tuesday’s losses dramatically, with RBOB bouncing 10 cents off of its low for the day, while ULSD rallied by 7 cents. Despite that big bounce, which managed to keep the bullish trend comfortably intact, ULSD prices did snap their 10 session winning streak that had added a casual 66 cents to prices over the past 2 weeks.
The EIA’s monthly Short Term Energy Outlook followed the pattern of several major bank reports in the past week, raising its forecast for energy prices for the next year due to the ongoing fallout over Russia’s invasion of Ukraine, even though the forecast suggests global oil supplies should outpace demand in each of the next 6 quarters.
The report predicts that Russian oil output will drop 2 million barrels/day over the coming year from 11 to 9 million, while US output will increase from 11 million to 13 million by the end of 2023. The report also highlights the drop in operable US refining capacity over the past 2 years, as a harsh reminder that this isn’t so much a global lack of oil, it’s more a shortage of transportation and refining capabilities. See the notes and charts below.
The API reported inventory builds across the board last week with US crude and gasoline stocks each up 1.8 million barrels, while distillates increased by 3.3 million. The DOE’s version of the weekly stats is due out at its normal time this morning.
Excuse me: New efforts to curb carbon emissions this week include New Zealand putting a pricing mechanism on sheep and cow burps and a Wisconsin fuel marketer shipping processed cow waste to California. (insert Texans making a “is that why they’re all moving here?” joke) Meanwhile, as new and more creative ways to take advantage of California’s Low Carbon Fuel standard emerge, that market-based program is seeing the value of its credits plummet to 5 year lows.
STEO NOTES:
Open Interest: The STEO also noted the dramatic drop in open interest for energy contracts, stating that, “Fewer futures contracts held by these traders suggest some producers or end users could be reducing their hedging activity, in part, because higher commodity prices and higher volatility are likely making it more expensive to hedge. In addition, higher interest rates may be increasing the costs of opening a futures position, such as higher margin rates.” Keep this in mind the next time oil prices crash.
East Coast Shortages: “By the end of April, gasoline inventories on the East Coast were 14 million barrels below their five-year (2017–2021) average levels (Figure 6). At the same time, combined Gulf Coast and Midwest inventories were almost 2 million barrels above their five-year average level. In May, East Coast gasoline inventories remained low and did not decrease much further, while Midwest and Gulf Coast inventories drew down substantially. On May 27, combined Gulf Coast and Midwest inventories were down by 6 million barrels from their end-April levels while East Coast gasoline inventories were down by almost 1 million barrels”
Tight Diesel Supplies: We estimate distillate imports, which would normally increase to help rebuild low inventories and moderate prices, were below the five-year average at 145,000 b/d for the four weeks ending May 27. If confirmed in monthly data, this recent decrease in distillate imports would signal that global demand remains strong as markets continue to adjust to sanctions on Russia’s exports, reduced export quotas in China, and overall lower global refinery capacity.
Refinery crack spreads: Inventories for gasoline and diesel in the United States are low at the same time that they are similarly low in Europe and elsewhere in the Atlantic Basin, contributing to broad increases in crack spreads for both products
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.