Oil and Gas Prices Are Seeing Another Healthy Selloff To Start The Week
Oil and gasoline prices are seeing another healthy selloff to start the week, with more COVID restrictions in China taking credit for much of that move, while Diesel and Natural gas prices are moving higher after Russia shut the Nord Stream 1 pipeline for maintenance, and some doubt it will come back online.
Adding to the bearish sentiment in crude oil this morning, a Russian court lifted its suspension on the Caspian crude pipeline, which transports 1.2 million barrels of oil per day.
The $1/gallon drop in gasoline futures over the past month is trickling its way to the pumps, with the national average retail price falling for 24 straight days, and having its largest single-day drop since 2008 on Friday.
NYMEX contracts saw heavy liquidation of long positions by money managers early last week, and a large amount of new shorts enter the market that no doubt contributed to the heavy sell-off we saw early in the week. Open interest for crude and refined product contracts remains near 5-year lows, which is also contributing to the volatility with a lack of liquidity to buffer the daily price swings.
Baker Hughes reported 2 more oil rigs actively drilling in the US, while the natural gas rig count held steady. At the current pace, we should see the total US rig count reach pre-pandemic levels by year-end.
The National Hurricane Center is tracking a potential storm system in the northern Gulf of Mexico this week, giving it a 30% probability of becoming a tropical storm in the next 5 days.
Even with the low odds of developing into a named storm, this system could further disrupt barge traffic on the intra-coastal waterway and create more terminal outages at locations along the Florida panhandle that have already had more than their share of runouts this year.
An EIA note this morning highlighted the surge in US LNG exports in recent years, well before Russia’s invasion of Ukraine made Natural Gas the world’s most important commodity. A WSJ article last week noted how Europe’s race to find new LNG sellers may be choking off supplies to poorer countries around the world.
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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.