The Energy Complex Seems To Be Taking A Breather This Morning
The energy complex seems to be taking a breather this morning after Russia cutting natural gas supply to its neighbors overwhelmed the potential demand destruction from new COVID lockdowns and pushed prices higher yesterday. As of now, gasoline futures are trading on the green side of flat while diesel and American crude oil contracts are posting ~1% losses to start the day.
The spread between the expiring May and June ULSD futures contracts continued to set records yesterday with the former trading as high as 71 cents above the latter. A combination of a dismal short-term supply outlook and end-of-the-month trading volatility is taking credit for yesterday’s sharp increase. Physical markets scrambled to offset the change in futures prices with 5-20 cent gains or losses, depending on which futures month each market is referencing.
The API’s national inventory estimate published yesterday afternoon didn’t seem to move the needle in overnight trading. The Institute estimated a moderate build of 4.7 million barrels of crude oil last week while gasoline stockpiles drew down by almost 4 million barrels. The total diesel inventory for the country grew by just under 500,000 barrels, however the more interesting number traders will be looking is the inventory levels in the New York market. If the Department of Energy publishes new all-time lows this morning, we will likely see another surge in prompt month diesel futures.
Crude and heating aren’t the only oil markets the war in Ukraine is distressing: many different cooking oil supplies are tight around the world, causing some countries to ban exports. While this might not affect refined product prices outright, it is pushing some blendstock and renewable credit prices higher. Corn futures, the underlying product influencing ethanol and D6 RIN prices, is trading at highs only seen once in the history of the contract. Soybean oil, the main price driver for biodiesel and D4 RINs, is setting new all-time highs this morning. It will be interesting to see, now that food scarcity is contributing to higher energy prices, if more start asking the question “should we be growing crops for fuel?”
Click here to download a PDF of today's TACenergy Market Talk.
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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.