Gasoline Demand (And Perhaps Prices) Reach A Plateau
RBOB gasoline futures reached fresh 7 year highs in Tuesday’s session, but were unable to drag oil and diesel prices along for the ride. All petroleum contracts are ticking modestly higher to start Wednesday’s session, and even the laggards are just 1 strong day away from reaching multi-year highs of their own, as the market continues to shrug off concerns of rising COVID cases, and shutdowns. Read this Reuters article to see an argument why gasoline demand (and perhaps prices) have reached a plateau.
San Francisco continues to steal the spotlight with spiking basis values as refinery shutdowns, various logistical hurdles caused by wildfires, pipeline slowdowns and now an emergency request from airlines to have the FERC force more jet fuel shipments all combine to send prices soaring 20-30 cents above futures, and 10-20 cents around neighboring markets.
Inventory draws across the board reported by the API seem to have helped encourage buyers through the overnight session, although the moves are relatively small. The weekly industry estimate showed gasoline stocks dropped by 6.2 million barrels, crude stocks were down 4.7 million barrels and distillates decreased by 1.9 million. The government’s version of the weekly inventory report is due out at its normal time. Keep an eye on import levels, particularly for gasoline, as it seems the US has become the target for the fuel the rest of the world can’t use.
Speaking of which, RIN values are ticking steadily higher over the past few days, despite corn & soybean prices. Those refined product imports – which create an RFS obligation – are one reason that may be helping those credits find a bid. Ethanol producers meanwhile are feeling the heat of accusations that their fuel is bad for the climate, and sent a letter to the President Tuesday committing to join the rest of the world in pretending it can reach net zero emissions by 2050.
Some good news for renewable energy: The EIA reported that renewables surpassed both coal and nuclear to become the 2nd largest power generation source in 2020.
Bad news for renewable energy: That same report projects coal will outpace renewables in 2021 as rising natural gas prices make it more competitive.
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.