Market Talk - 2019 november
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A Little Something For Everyone On The Thanksgiving Table
There’s a little something for everyone this morning with RBOB gasoline futures trading lower, ULSD futures moving higher, while WTI is unchanged so far on the day. Prices continue to hover near 2-month highs, but so far seem to lack the conviction needed to push through that resistance.
The API was said to report large builds of 3.6 million barrels of crude oil inventories and 4.3 million barrels of gasoline last week, while distillate stocks declined by 665k barrels. Those data points contributed to a late afternoon pull back for RBOB and WTI, and help explain the relative strength of ULSD this morning. The DOE’s weekly report is due out at its normal time.
This is known as the busiest travel day of the year in the US, and based on the large proportion of people not logged into instant messaging systems this morning, it seems like the trading activity will be sparse this morning, and possibly non-existent this afternoon.
Even though there are 4 calendar days left in the month, and the NYMEX contracts will be open for trading in abbreviated sessions Thursday and Friday, due to spot markets not being assessed either day, this will become the effective last day of November trading for most physical players.
Speaking of winding down, take a look at the LA basis charts below that show the CA spot markets seem to be calming after a bout of extreme volatility this fall.
The EIA got into the holiday spirit this morning, publishing a look at gasoline prices nationwide during Thanksgiving week, and noting the similarities currently to the past 2 years.
Is It "Trade Optimism," Or Is It "Turkey" Driving Energy Futures
Energy futures are moving higher to start Tuesday’s session, with trade optimism once again taking credit for the early buying, with most contracts hovering near the top of their fall trading range heading into the busiest travel day of the year for the US.
Based on the back and forth action of the past 2 months, we need to see ULSD futures break above $2, and RBOB get above $1.70 before getting too excited over this latest round of buying. That said, with many traders already thinking more about travel and turkey, there could be an outsized move if that technical break happens with light volume this week.
The forward curve charts below show that through the ups and downs over the past 2 months, the forward curves for the big 4 petroleum contracts have not made much of a change, another data point that we’re in a wait and see market for the time being.
A Reuters report Monday provided the most damning evidence yet of Iranian involvement in the September attacks on Saudi oil assets. While this article is stoking fears of further violence in the region, it’s worth noting with the overnight headlines below as examples, Reuters articles are a dime a dozen these days and seem to carry less weight than they once did.
Misleading headlines: Which one is it? See Top Stories Image Below
Small Contract Losses and Gains Start Thanksgiving Week 2019
It’s a mixed start to the week for energy contracts, with WTI and RBOB showing small losses, while Brent and ULSD cling to small gains. Prices remain within striking distance of the high-end of the November trading range, but so far seem unwilling to make the next move with uncertainty over trade talks and the upcoming OPEC meeting both looming.
Money managers made very small additions to their net long holdings of Brent, ULSD and RBOB contracts as of last Tuesday (when the COT data is compiled) and made a slight reduction in their long bets on WTI.
Baker Hughes reported a 5th straight weekly decline in the US oil rig count, to a total of 671 active rigs. Drilling activity according to this measure is approaching a 3 year low, with 206 rigs taken out of service so far in 2019.
Here’s a decent (if biased) read on the state of the renewable fuel standard, that also helps to partially explain why biodiesel RINs are holding near multi-year highs while ethanol RINs are holding near multi-year lows (chart below).
Thanksgiving Holiday Trading Schedule: The CME’s NYMEX contracts will trade in abbreviated sessions both Thursday and Friday this week, with settlements published only for Friday. The major spot market publications will be closed both days so expect the NYMEX volumes to be low most rack prices to carry through the long weekend, although most suppliers will reserve the right to change prices should something exciting happen.
WTI and Brent Reach 2 Month Highs
Just 2 days after prices were reaching their lows for November and threatening a technical breakdown, WTI and Brent both reached 2 month highs and are on the cusp of a technical breakout to the upside. As has been the case, whether the market is up or down, US/China trade talks and the November OPEC meeting are getting credit for the move, even though nothing has actually changed in either case.
Refined products have had similar moves to oil, rallying around 10 cents in two days, but unlike crude they’ve not yet broken through the top end of their November trading range.
This is often the start of the winter doldrums for refiners, and with crack spreads already falling sharply over the past months for many US plants, it seems that hope for the new IMO rules would prop up spreads have not yet materialized. As has been the case for most of the past year, there still seem to be more questions than answers on the new marine diesel specs, so don’t be surprised to see more volatility in crack spreads over the next few months.
One noteworthy difference from last year is the relative lack of volatility in both energy and equity markets compared to 2018. It may not seem like it’s low volatility after a back and forth week like we’ve just experienced, but looking at the volatility chart below, the daily movements in both asset classes are a fraction of what they were this time last year at the mid-point of the great Q4 sell-off that didn’t end until reaching a crescendo on Christmas eve. For comparison purposes, WTI dropped from $65 to $49 last November, making this week’s move seem a bit insignificant.
Modest Bounce Turns Into Serious Rally
A modest bounce in the early hours of Wednesday’s trading turned into a serious rally late morning as a combination of technical and fundamental factors combined to give energy prices their biggest daily rally of the month so far. The healthy bounce off of support for oil contracts keeps prices in their sideways trend, which suggests we’re likely to see more back and forth action at least until the OPEC meeting at the end of the month.
While the timing of the rally had many wondering where the bullish data points were in a DOE report that wasn’t so bullish, it also coincided with reports that Vladimir Putin was signaling further cooperation with OPEC to keep the global market in balance.
US oil production held at 12.8 million barrels/day for a 2nd straight week, marking a 1 million barrel/day increase from a year ago (which was an all-time record at the time) and a 3 million barrel/day increase from 2 years ago. For perspective, 3 million barrels/day is more than what Venezuela was producing prior to its economic collapse, so this steady growth in US output helps explain why global supply threats just aren’t as threatening as they used to be.
Want to see why west coast gasoline prices have collapsed in the past week? Take a look at the PADD 5 gasoline chart below that shows regional stocks have gone from below their 5 year seasonal range to above it in just 1 week.