Most Energy Contracts Are Seeing Modest Gains To Start Thursday’s Session

Market TalkThursday, May 5 2022
Pivotal Week For Price Action

Most energy contracts are seeing modest gains to start Thursday’s session after the FED and fundamentals both gave a big boost to buyers Wednesday. 

The only contract moving into the red this morning is June HO which is seeing its premium to outer months come back to something resembling sanity, while the majority of the complex moves higher.

While the FOMC announcement sent stocks on one of their biggest daily rallies on record, energy contracts were already staging a strong rally as the weekly inventory reports from the API and DOE remind buyers that there are no short term solutions to the supply crunch. 

A surge in gasoline imports helped PADD 1 inventories tick higher after reaching a multi-year low last week, while the rest of the US saw healthy declines. Diesel does not have the luxury of international length coming to the rescue, pushing total US inventories to a fresh 8 year low, while PADD 1 stocks fell to a new record low. The arbitrage window from just about anywhere in the US to the East Coast is wide open for those with a truck, train or boat, the people to drive them and the nerves to ship into a market that’s trading $1.30/gallon lower in September than it is today.  

The PADD 1 refiners that survived several bleak years are being rewarded for their perseverance with diesel margins that are being measured in dollars per gallon instead of dollars per barrel, and have increased run rates to their highest level since the start of the pandemic as a result. While other refiners have discussed delaying maintenance this summer to continue operating in this rare margin environment, run rates in each of the other 4 PADDs declined on the week which certainly isn’t helping the tight supply situations in most markets.

As expected, the FOMC announced a 50 point rate increase Wednesday, the first increase of that size in almost 22 years. What surprised just about everyone however was that the FED chair took the idea of a 75 point hike at the upcoming meetings off the table, which sparked a huge rally in equities that seemed to spill over into energy contracts as well. The CME’s Fedwatch tool shows that essentially no one is betting on a Fed Funds rate of 1.75% or higher in July, whereas yesterday before the announcement, 99% of the wagers were at or above that level.

While the FED probably can’t do anything to flatten the front end of the backwardated diesel curve, it is likely that the rally in equities could encourage more buying in the forward months for crude oil and diesel as a slower pace of interest rate hikes seems to reduce the likelihood of a recession.

Meanwhile, don’t expect politicians to sit back and not pretend to do nothing about high fuel prices in an election year. Congress is taking another run at making OPEC illegal as the mid-terms draw near. Read here to see what it would take to actually make this a law after numerous failed attempts in previous decades, and what the risks are if it happens.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 05.05.22

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Pivotal Week For Price Action
Market TalkMonday, Oct 2 2023

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.

Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.