Pivotal Test For The Energy Complex In The Back Half Of The Week
Buy the dip was the theme of Tuesday’s session as nickel losses for refined products in the morning were wiped out in the afternoon. So far today we’re seeing a similar pattern, with 4 cent losses overnight being cut nearly in half this morning. This back and forth action after prices hit fresh 7 year highs Monday sets up a pivotal test for the energy complex in the back half of the week. Reports that the Chinese government was planning to intervene to halt the surge in electricity prices had coal prices dropping sharply, and was getting credit for sell-off overnight.
If the bulls can continue surviving these selloff attempts, the charts continue to favor higher prices, and a run towards $90 for crude seems like the path of least resistance. If they can’t regain the upward momentum this week however, expect to see products drop by about a dime in short order and make a more serious test of the upward sloping trend lines.
The API was said to show decreases of 3 million barrels for both gasoline and diesel last week, while crude stocks increased more than 3 million barrels. Based on the market reaction, that report didn’t mean much as refined products are leading the slide lower, further compressing crack spreads that have come under pressure this week, after a strong rally earlier in October. A Reuters article this morning highlighted how stronger crack spreads are encouraging refiners globally to increase run rates, which are expected to continue increasing through the winter.
The DOE’s weekly status report is due out at its normal time this morning. A few things to watch for in today’s report: US Crude production may have climbed back to Pre-Ida levels last week, even though roughly 250mb/day of production capacity in the Gulf of Mexico remains offline, showing the ramp up in onshore output the past two months. Also watch refinery runs to see how facilities are recovering from a rash of unplanned maintenance events over the past month that have contributed to tighter than normal supplies in many markets. Last, look at the swings between PADD 3 and PADD 1 refined product inventories to see the impact of the Plantation pipeline shutdown. The backwardation in NY Harbor spot prices through the end of Thanksgiving has shrunk by nearly a nickel this week suggesting the squeeze is behind us.
While refined product prices have stalled out this week, ethanol prices continue to surge, with spot prices on the East and West coasts both rallying north of $3/gallon this week. That strength in ethanol seems to be contributing to strength in the RIN markets, which are at their highest levels since Labor day.
Surging natural gas & coal prices have been front page news over the past month, and have contributed heavily to the rally in oil and refined products. An EIA note this morning highlighted the expected growth in natural gas demand from non-OECD countries in Asia (primarily China and India) and how US exports are set to double in the next decade to help meet that demand.
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.