It’s Been A Wild Week Since The Black Friday Meltdown
The volatility continues in energy prices with Thursday’s session featuring multiple nickel swings and a 13 cent trading range for refined products, and Friday’s session starting out on a strong but cautious note. It’s been a wild week since the Black Friday meltdown, and the forward curve charts below help put some perspective on how dramatically the landscape for petroleum products has changed in that time.
OPEC & Friend’s decided to stick with their current plan to increase production by 400,000 barrels/day each month, which caused a bit of a flash crash yesterday morning, with refined products dropping from nickel gains to nickel losses in just a matter of minutes, before recovering back to nickel gains later in the day…only to have those gains wiped out in the afternoon. The theory on why prices have found a temporary floor even though OPEC didn’t slow its production plans is that the cartel must not see Omicron as having a long term impact on global demand if they’re willing to stick to their plans. In addition, the cartel did leave the door open to additional changes if needed to stabilize the market.
RIN trading had been unusually quiet over the past week as traders seemed more focused on the wild swings in refined products and ethanol prices, but sold off sharply Thursday afternoon dropping to 2 month lows following a Reuters report that the EPA would finally be releasing its past-due RVO figures and that retroactive reductions in blending obligations were expected. The drop in RIN values, which is continuing this morning, offers a little relief to refiners that have seen their gross margins hit hard over the past month as refined products have led crude lower since prices peaked.
The November jobs report showed an increase of 210,000 jobs during the month and another substantial decrease in both the headline and real (U6) unemployment rates. Both October and September’s jobs estimates were increased. Equity and energy prices ticked modestly higher after the report, and then gave back those gains, but the moves were minor in comparison to what we’ve become accustomed to this week.
This week’s interesting read: Enron’s complicated legacy on the 20th anniversary of its bankruptcy.
Today’s less interesting, but still noteworthy read: An EIA note this morning highlights the widening of crude oil price spreads owing to returning OPEC Production and higher natural gas prices.
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.