September Trading Picks Up Where August Left Off - Heavy Selling Across Energy Complex
September trading is picking up where August left off, with heavy selling across the energy complex. Actually, that’s how August trading started as well with big moves lower the first week of the month, only to see a rally of nearly $1/gallon in diesel prices before the latest pullback started.
Demand fears of several varieties continue to get credit for the big drop in product prices, while low volumes/liquidity and reports that Russia continues to find ways to circumvent sanctions also seem to be contributing factors to the big price swings.
ULSD prices are leading the complex lower this morning, even though US inventories remain at dangerously low levels and exports are holding near record highs. Yesterday’s DOE report did show a sharp decline in the weekly demand estimate for diesel, which is no doubt contributing to the bearish sentiment.
One note to watch, just as we saw in August, ULSD futures left a gap in their chart when October took over the prompt position today, due to the backwardation in prices. One trading adage that actually works more often than not is that gaps get filled, meaning there’s a good chance we’ll see prices bounce back at least to $3.69 sometime in the relatively near future.
Gasoline futures are now at their lowest level since January 11th, and if today’s early selling holds, we could see spot prices in the USGC and Group 3 markets touch $2.20/gallon, which would mark a $2/gallon drop from their June peak.
While most gasoline prices are crumbling this week, gasoline basis values in LA spiked Thursday, more than offsetting the big drop in futures, as PADD 5 gasoline stocks fell sharply for a 4th straight week, and are now approaching their lowest levels since 2019. A combination of low refinery runs, almost no imports the past 6 weeks, and the end of the summer-grade gasoline spec for the year all seem to be contributing to that squeeze in gasoline prices.
For the first time in 25 years, there were no named storms in the Atlantic for the entire month of August, and we’re approaching the record for the longest stretch of days without a named system, even though the major forecasts for the year all called for above-average activity. We’re still about 2 weeks away from the peak of the season, however, meaning there’s still the majority of the annual activity left to come. The NHC is still tracking 3 systems this week, but none of them appear to be a threat to the US. If you’re wondering why we have to watch this so closely, take a look at the Refinery Thruput PADD 3 chart below and see how production has been impacted the past two years right about this time.
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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.