Huge Price Reversal From 6-Year Highs
Volatility is back in energy markets after a huge price reversal from 6 year highs in Tuesday’s session was followed up with more whipsaw trading this morning. After Tuesday’s outside down reversal (which the text book will tell you is a bearish signal) we saw prices rally overnight, wiping out more than half of the previous losses, only to see those gains wiped out in 10 minutes of heavy selling this morning before more modest buying picked up again.
The reversals are putting energy prices up to their biggest technical test in 2 months, threatening to finally put an end to the rally that’s been keeping prices moving steadily higher for the past 8 months. Volatile action is often seen when a trend comes to an end, so we could be seeing energy prices finding a top, but they haven’t yet dropped below their trend-lines, so it’s too soon to say that the bull market is over.
Tuesday’s big swings were largely blamed on the OPEC drama, but the sell-off was much more widespread than just petroleum, impacting both equities and numerous other commodities, that suggests fear may be creeping back into the market after an extended period of re-opening fueled optimism seems to have run its course.
While oil prices initially spiked when OPEC failed to come to an agreement, it quickly became clear that a lack of an agreement when the cartel is intentionally withholding production may actually be bearish for prices not bullish. Also, keep in mind that Saudi Arabia made its own production cuts – in excess of what the alliance agreed to – last year, so is free to reverse course and increase output whenever it wants. In both price crashes of 2014 and 2020, we’ve seen the Saudis allow prices to drop to teach the Russians and Iranians (among others) a lesson, and it wouldn’t be surprising to see them do something similar to the UAE now.
A stronger US Dollar also got credit for the selling, as it often does any time commodities see a broad selloff. The problem with that theory is that the correlation between the dollar and energy price movements has been strongly positive lately, which is the opposite of what it’s “supposed” to be. That certainly doesn’t help explain why the dollar moving higher Tuesday was suddenly bearish for oil when the two have been moving higher in tandem for much of the past month.
RINs joined in on the reversal action, following grain and refined products by dropping 10 cents from where they were trading in the early going. Grain prices are seeing an early bounce this morning, as refined products were, which should encourage buyers that may have grown weary after multiple big drops in the past month.
Elsa was briefly upgraded back to Hurricane status, but has since weakened again to a tropical storm and is soon to make landfall on Florida’s northern Gulf Coast. So far no major disruptions to terminal operations have been reported, or are expected, although several facilities shut down temporarily while the storm passes.
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.