The Energy Complex Is Green Across The Board This Morning
The energy complex is green across the board this morning with the distillate contract leading futures higher with over 1% gains to start the day. US gasoline and crude oil benchmarks are tagging along, both boosting prices about .7% this morning, as a weakening dollar takes the credit for positive price action.
Not all quiet on the Atlantic front: while Hurricane Earl came and went without causing any damage to energy infrastructure, there are two areas of interest that have potential for development, heading this way. While they don’t pose an immediate threat, both disturbances are positioned squarely in the historical origin range for some of the largest storms we have experienced.
Baker Hughes’ total US rig count dropped by one last week, the second consecutive week of decreases in active oil production plants. The reactivation of platforms has slowed down over the past few weeks, mirroring the drop in oil prices, disincentivizing some from starting their drills.
Money Managers trimmed their net positions in all but one of the major petroleum futures contracts last week. West Texas Intermediate crude oil saw the only increase in net positions while speculators telegraphed much more bearish sentiment in its European counterpart, cutting their bets on higher prices by nearly 8%. The refined product positions saw either double digit percentage drops in long positions or double digit percentage gains in short positions, signaling that the “smart money” expects lower prices in the short term.
The Chinese response to their increased COVID-19 problem remains one of the go-to topics for headlines as of late. Demand concerns due to new lockdowns are taking credit for the weakness in energy prices we’ve seen since June this year. Several other fundamental drivers remain in flux however:
Will Russia respond to the West’s price cap proposal ?
Will OPEC+ maintain the production levels or continue to tweak them ?
Will a nuclear deal be made with Iran , releasing some of their oil production back into the market?
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe 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.