Solid Gains Posted As Trading Winds Down For Holiday
Energy and equity markets are cheering a strong jobs report this morning, posting solid gains as trading winds down for the holiday-shortened week.
The June payroll report showed another strong month for the recovery in U.S. employment with 4.8 million jobs added during the month. The headline unemployment rate dropped from 13.3 percent to 11.1 percent, while the U-6 rate dropped from 21.2 percent to 18 percent. Those figures were better than most forecasts, similar to what we saw in May’s report, suggesting the recovery on the street is much stronger than we see on the news. The big question for July will be whether or not this trend can continue now that states are having to reverse some of their reopening plans.
Spot markets will not be assessed tomorrow, and although there will be an abbreviated NYMEX trading session (you mean the rest of the world doesn’t celebrate July 4th?) there will not be settlements for those futures contracts, so most rack prices posted tonight will carry through Monday.
The latest in the political football known as the Renewable Fuel Standard: Senators from Big Oil and Big Ag states are both separately threatening to block nominations of EPA officials until the agency updates the RFS. At least they finally agree on something. Meanwhile, the EPA administrator is saying the agency is waiting for feedback from the DOE before proceeding with a plan on small refinery exemptions, and is not planning on releasing proposed RFS volumes this week. While the same tired debate plays out in Washington, ethanol prices are surging, well above pre-COVID levels now as inventories have quickly gone from record highs to their lowest in 3.5 years, as producers have not kept pace with the increase in demand.
The DOE’s weekly report showed crude oil stocks had their largest draw of the year, pulling back from record highs, as import volumes slowed and refinery runs continue to inch higher, passing the 14 million barrel/day mark for the first time since March. Normally this time of year we’d expect refinery runs north of 17 million barrels/day.
We seem to be in a pattern of two steps forward, one step back for U.S. fuel demand. Last week, diesel consumption estimates had a nice uptick, while gasoline pulled back. We should see a surge in gasoline demand heading into the holidays, particularly with automobiles now the preferred mode of transport, but total consumption is still some 20 percent below where it should be this time of year.
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.