How Will The Election Impact Oil Production?
Despite large declines in inventories, RBOB futures are tumbling to start Wednesday’s session as the latest forecast track for Laura seems to have taken the worst case scenario off the table, even as the storm rapidly intensified overnight.
Hurricane Laura is now a Category 3 hurricane, and could become a Category 4 before it hits the coast overnight tonight with over 120 mph winds. The models released at 1 a.m. shifted the storm’s path slightly east, closer to the Lake Charles, LA refineries, and further away from the Port Arthur/Beaumont plants. The latest track moves the Houston and Galveston refineries outside the forecast cone, which rules out a direct hit on that area, and may help explain the pullback in futures this morning.
While almost all of the refineries in the area, representing 20 percent of the country’s total capacity, are either shutting down or preparing to idle some units as a precaution, right now it looks like the Lake Charles area facilities are going to get the worst of Laura’s surge as they’re on the more dangerous side of the storm.
Why this storm won’t be the “next Hurricane Harvey” in terms of energy supply disruption: Harvey stayed on the Gulf Coast for a week, and dumped five feet of rain on some spots. Laura will make landfall Thursday morning and be into Central Arkansas by Friday. Although 10-15’ of storm surge and 15” of rain is nothing to take lightly, the recovery efforts from the damage that is certain to be done along the coast can begin much faster since this storm won’t stick around for long.
The API was said to show large declines in oil and gasoline stocks last week, of 4.5 and 6.4 million barrels respectively, while diesel inventories built by 2.3 million barrels. The DOE’s weekly report is due out at its normal time this morning, and will likely be ignored as the storm has made last weeks’ figures irrelevant.
Wondering how the election may impact oil production? Take a look at this Rystad Energy study on oil output during the past 80 years by President and party. The study suggests that the potential restrictions imposed on oil drilling should a new president be elected may actually increase oil output as it will make onshore shale plays more profitable.
Click here to download a PDF of today's TACenergy Market Talk.
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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.