Whiplash Is The Theme Of The Week As Stock Markets Had Their Biggest Daily Swings In Years
Whiplash is the theme of the week as stock markets had their biggest daily swings in years while energy futures are getting swept up in the confusion. After a busy Monday, we’ve already seen a nickel swing in ULSD prices today, with RBOB and crude oil contracts seeing similar back and forth action in the early going.
Looking at only the charts, and not the headlines, refined products have so far been able to find technical support around the trend-lines that have fueled their bull run over the past 6 weeks. If we see ULSD continue to hold a floor just north of $2.60 and RBOB around $2.40, there’s a good chance we end up seeing another run at 2014 prices levels, but if those levels break (and hold) there’s a good chance we’ll see a 10-15 cent drop coming soon.
The DJIA had its biggest daily swing since the onset of the pandemic, rallying from an 1,100 point loss mid-day to end the session up nearly 100 points, but is pointing to another weak start down nearly 400 points this morning. The Nasdaq 100 had an even bigger bounce, rallying more than 5% off of its lows for the day, the biggest daily reversal since the financial crisis in 2008, but it too is looking weaker again to start today’s trading.
Perhaps the biggest headwind for stocks is that the FED has been signaling that it will not be coming to the rescue to prop up financial markets, and in fact will be tightening its monetary policy and raising rates, taking the free put option out of the market. How this impacts energy prices can depend on the day, as often times the correlation between the two asset classes can be strong and they move in lock step, but currently are only moving together for short periods of time.
The VIX chart below shows that stocks are more “nervous” now than they’ve been since we first learned about Omicron, and while energy volatility is elevated, it’s nowhere close to what we saw 2 months ago.
The escalating tensions around Ukraine have become a double-edged sword for energy prices as they weigh heavily on financial markets, adding to the unpredictable nature of trading this week after helping fuel the rally for the past 2 months.
A new report from McKinsey & Company suggests that the transition to net zero will require an extra $3.5 trillion in spending per year through 2050, for a total of $275 trillion. Too bad the FED has closed down its printing press for the time being or that would seem like pocket change. The report also noted that while the transition to new fuels may cost 185 million existing jobs, it will create roughly 200 million new positions.
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.