Rally In Energy Prices Stall While Awaiting Weekly Reports
The rally in energy prices looks like it’s stalled out as we await the weekly inventory reports, and charts suggest we may be due for another round of selling after prices have failed to hold at two month highs. There is little in the way of news that seems to be driving the action, and U.S. equity futures are still pointed higher, suggesting this may be a largely technical sell-off.
ULSD futures have traded up to $1.02 in five out of the past seven sessions, but have failed each time to settle north of that level, and haven’t settled north of $1 in over a week. RBOB is seeing a similar pattern, with the $1.07 - $1.09 range acting as a bit of a technical ceiling over the past week. That lack of conviction by buyers looks like it’s left products susceptible to another sharp selloff, although so far the upward trend-lines have not been broken. If those trend lines do break down, there’s an easy 15 cents or more of downside room for products in the next week or two.
The IEA published its World Energy Investment report for 2020 this morning, and predicted the largest annual decrease on record as emergency measures force companies and governments to slash spending. The report notes that all forms of energy investment are being negatively impacted by COVID-19 related issues, but oil investment is seeing the worst of it, with predictions for 50 percent declines in spending, versus 10 to 20 percent declines for gas, electricity and renewables.
Another IEA report released this morning takes a closer look at the change in transportation behavior in recent months, and looks at previous events to help determine the deciding factors in whether or not the shift in transport modes will last.
The EIA published a comparison of 10 North American crude oil contracts this morning, using the April 20 price plunge to show their interconnected pricing structures. Similar to the physical refined product markets around the U.S., the prices among crude grades are similar, but vary based on location, quality, and timing.
The Dallas FED’s survey of Texas manufacturing companies shows that while things are still bleak (near the lowest levels of the 2008 financial crisis), they are improving noticeably since April.
Click here to download a PDF of today's TACenergy Market Talk.
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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.