FED Acknowledges Higher Levels Of Inflation
Oil & equity prices are pulling back from Multi-year highs, after the FED (finally?) acknowledged higher levels of inflation and suggested it would start tightening its monetary policy earlier than previously thought. The moves in both asset classes has been relatively minor compared to some of the huge FED-induced swings we’ve seen in prior years, likely because despite that more hawkish tone, the earliest interest rate increases are still expected to come in 2023, and no timeline was given for reducing their asset purchases.
RIN values have dropped around 70 cents (30-35% depending on the type/vintage) in just 4 trading sessions since reports that the President was considering relief for refiners from the RFS. Wednesday a group of democratic members of congress urged the EPA not to allow that relief since their constituents can make money turning marginal farmland into 198 proof grain alcohol that we can put in our cars even though several studies suggest those ethanol policies are worse for the environment than gasoline. Any action from the EPA is expected to come after the Supreme Court rules on the small refinery waivers to the RFS, which could happen any day now. So far this morning RINs have found a bid a penny or two higher than where they left off Wednesday night, so the bleeding seems to have stopped at least temporarily.
There’s a good chance the storm system churning in the gulf will be named Claudette by the weekend, with heavy rain expected to start reaching refining country tomorrow. Forecasts suggest that wind shear and dry air will prevent this system from becoming a hurricane before it reaches land, and it’s been 35 years since a hurricane hit the Gulf Coast in June, but we’re all about breaking precedents recently, so don’t expect that bit of history to mean much.
Getting back to normal: Yesterday’s DOE report showed numerous data points from total petroleum demand, to refinery runs getting back into their typical seasonal ranges, even if not quite yet back to pre-pandemic levels. PADD 1 inventories are back towards the top end of their seasonal ranges, 5 weeks after dropped off a cliff when Colonial pipeline was shut down. Increased imports show how the world is ready and able to jump in to help alleviate tight supplies as long as the market will pay them to do so.
Who needs Keystone? PADD 2 refinery runs spiked last week to their highest levels in nearly 2 years. The lack of a Keystone pipeline means less competition for crude coming from Canada, giving those plants an economic advantage on their inputs, while they’ll struggle at certain times of the year to find a home for their output.
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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
Week 39 - US DOE Inventory Recap
Crude Oil Futures Are Leading The Energy Complex Higher This Morning With WTI Jumping 2% And Exchanging Hands Above The $92
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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.
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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.