Selloff Stretches To A Sixth Straight Day
Several energy contracts have dropped to 3 month lows this morning as the selloff stretches to a 6th straight day. The main driver of the big move today is an apparent taper tantrum as the FED telegraphs an end to its most recent round of money printing. A secondary catalyst seems to be the fallout from two tropical storm systems reaching the major population centers along the East Coast that may keep many drivers off the road, at a time when it’s already looking like domestic consumption is heading lower.
Energy futures were already looking like they may be due for a big move lower prior to the FED minutes release, and the selloff in equities seems to be adding to the negative sentiment even though the correlation between daily price movements in the two asset classes had broken down in recent weeks. Whenever FED stimulus is a market driver, we experience the strange “Good news is bad news” phenomenon. Yesterday was no different when the FOMC minutes suggested that the Delta variant won’t derail economic recovery in the US (Good news!) which means the FED has less reason to keep injecting money into the system (Bad news for investors wall street bankers!)
As the remnants of TS Fred dump heavy rain across large parts of the country, Henri has gone from an afterthought to a real threat as forecasts continue to shift the storm west. 2 days ago there was no threat to land, and now the New York harbor is showing up in some models, while the terminals from New Haven, Providence and Boston are now all in the forecast cone, suggesting the waterborne deliveries that region relies on are likely to face some disruption over the next few days. The good news is the handful of remaining refineries operating in the region are not in the forecast cone, and Colonial pipeline has spare capacity, which should help keep any supply disruptions contained.
Now that the July lows have been taken out for WTI and ULSD (and will be for RBOB once we roll to winter-specs in 2 weeks) the next stopping points on the charts look like the March lows. That means downside targets $57 for WTI, $1.73 for ULSD and $1.87 for RBOB.
Not much to write about from yesterday’s DOE report, and it didn’t seem to have much influence on the crescendo of selling. Diesel demand continues to look strong, holding above its 5 year range, while gasoline demand looks like it may have made its seasonal turn, and dropped back below its 5 year seasonal range.
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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.