Refined Products Are Teetering On The Edge Of A Technical Breakdown To Wrap Up Trading For The First Half Of The Year
Refined products are teetering on the edge of a technical breakdown to wrap up trading for the first half of the year. While two days of heavy selling has the energy complex in a defensive stance, support on the charts has not yet completely given way, meaning it’s still too soon to call a top in prices even though we’ve had a major pullback in the past two weeks.
RBOB prices are trading 62 cents below their June highs this morning, but still need to break and hold below $3.64 before the technical breakdown can be confirmed. Keep in mind that today’s expiration of the July RBOB contract will knock about 10 cents off of prompt values, which adds to the bearish outlook on the charts. IF the trend support and June lows break today, don’t be surprised to see prices make a run at $3 later this summer.
ULSD prices are in a similar spot, trading 64 cents below where they were less than 2 weeks ago, but they’ve rallied more than 6 cents from their overnight low at $3.95, giving the bulls a chance to hang on to the trend that’s pushed prices up from $2 in December. If prices drop and hold below $4, that trend will be officially broken which opens the door to a run at $3.50 in the next few weeks despite the well-documented fundamental issues with distillates.
Yesterday’s long-awaited DOE report, which provided a rare 2 weeks’ worth of data due to system issues seemed to be a catalyst for some of the selling in products, as inventory levels for both gasoline and diesel saw healthy increases in both of the past 2 weeks, while demand estimates slumped well below average levels for this time of year. Those data points also coincide with the latest slide in equity markets as some traders seem to be convinced that high prices may have already started to cure themselves, and the solution to the imbalance in fuel markets will come from a big drop in consumption.
US refiners are running at 95% capacity, but an EIA note suggests that in reality they’re effectively maxed out due to the normal operational constraints on those facilities that are much more complicated to operate than many believe. That report also highlights that US capacity is expected to decline for a third straight year in 2022 with 2 more plants scheduled to be shut down or converted, unless the record high margin environment convinces someone with a few billion dollars to reopen those plants.
Reminder: Today is the last day for July RBN and HON futures contracts, so for those in the NYH and Group 3 markets that haven’t already transitioned to an August price reference will need to watch the RBQ and HOQ contracts for direction today. The backwardation in products is not nearly as extreme as we’ve seen over the past few months, but there will still be a noticeable drop when August futures take the prompt position that will confuse some tomorrow when cash markets don’t follow.
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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.