Gasoline Futures Leading Energy Complex Higher
RBOB gasoline futures are leading the energy complex higher once again to start Thursday’s session, reaching a fresh 4 month high and punching through chart resistance at the 200 day moving average overnight. A large draw in gasoline inventories seems to have helped the annual spring gasoline rally with its latest push higher even though oil and distillate prices are lagging.
If RBOB futures can hold above the 200 day moving average (known historically as a level that large funds have used as an indicator of strength vs weakness) there is not much on the charts to prevent a run at the $2 mark over the coming weeks. WTI and ULSD futures may continue to act as a drag on the gasoline rally however if they can’t find enough momentum to break out of their sideways range.
According to the DOE, US refinery runs increased for a 2nd straight week, suggesting that we have made the turn for spring maintenance, and should see run rates increase over the next 6 weeks. One potential flaw with that typical-seasonal pattern: More unplanned refinery downtime. After Valero reported its McKee FCC went down again last week (for the 2nd time this year) multiple explosions were reported at HollyFrontier’s plant in El Dorado KS, and the Richmond CA refinery was also reported to have more problems.
Why are gasoline prices up a nickel since the DOE reported a 12% increase in PADD 1 refining rates last week? Gasoline stocks along the East Coast dropped by more than 3 million barrels, and even with the increase (from an 8 year low last week) refinery runs are still below the bottom end of their seasonal range.
Why are crude oil prices rallying even though oil inventories built by 7 million barrels last week? Net imports were up more than 1 million barrels/day on the week, accounting for an 11 million barrels increase based on trade flows, meaning the headline value is not likely reflective of lower demand.
The EPA reported that model year 2017 vehicles reached a record high fuel economy, and a record low for GHG emissions in their latest automotive trends update. As the chart below shows, manufacturers are using a wide range of technologies from turbo-charged engines (which has been driving up demand for premium gasoline) to more advanced transmissions and hybrid engines to achieve these targets.
Today’s head scratcher: With the world racing to produce more diesel ahead of expected shortages when the IMO 2020 rules take effect, why would Russia’s Rosneft delay upgrading projects at 5 of its refineries that would allow for increased diesel production? Are they tight on funds or betting on non-compliance to manage through the new rules?
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
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Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
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Gasoline 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.