Market Talk - 2019 october
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Oil and Diesel Prices Selling Off
Oil & diesel prices are selling off for a 4th straight day, while prompt gasoline prices were clinging to modest gains overnight as an unseasonably tight East Coast market keeps the buying pressure under gasoline spreads.
It’s Halloween, which means it’s the last day of trading for November product futures, so watch the December (RBZ and HOZ) contracts for direction today, which are both trading lower.
Diesel inventories fell for a 5th straight week and gasoline dropped for a 4th, but you’d have never guessed that was the case based on the big selling that took place following the report. The selling was particularly puzzling given some strong demand estimates on the week, particularly for gasoline, suggesting the declines were less driven by fundamentals than other factors.
US crude oil stocks did build on the week, Cushing OK saw a 4th straight week of inventory increases, and oil output held steady at its all-time high which seems to be keeping WTI under pressure relative to Brent.
As was widely expected, the FOMC announced another rate cut Wednesday, its third consecutive cut, but markets seem to be unimpressed by the FED’s signal that it would pause its monetary easing.
[Click here to download a PDF of today's TACenergy Market Talk.
Week 43 - US DOE Inventory Recap
Heavy Selloff Ended On A Bounce
What looked like a heavy selloff yesterday ended on a bounce with RBOB futures adding .0129 on the day and HO losing just 55 points. Prices look similar this morning if a bit muted ahead of inventory data due out from the EIA at 9:30 CDT.
A good reminder as to why the market typically waits for the EIA data as some can’t seem to agree on the API’s crude oil inventory change last week:
Without choosing which number to believe, some are attributing the slight downward pressure felt this morning to US-China trade war resolution delays, which may not be ready to execute next month.
WTI futures held above a main resistance level at $55.50 yesterday after testing waters beneath it. A bearish EIA report could press the issue and cause crude prices to break out to the downside, possibly leading to the $54 level.
Energy Complex Likely to Open Lower
The energy complex will likely open lower this morning, continuing to retrace last week’s gains. Uncertainty surrounding potential OPEC+ (read OPEC+Russia) production cuts and anticipated inventory builds are being blamed for the lower price action today. While it seems most headlines preceding decisions from the oil cartel and its main ally seem mostly to be conjecture, we won’t have to wait long to see if cuts are in the cards since the next supply meeting is set for December 5th & 6th.
The S&P 500 hit record highs yesterday, widening the gulf between energy and equities prices that traded in tandem just a year ago. Unrelated asset classes trading independently is typically a sign of a healthy market; that may not mean much to production rigs which reached a 2 year low last week due to unviable economics.
Tropical activity is pretty quiet for now, with only one area that could potentially develop into a system out in the mid-Atlantic. While we are on the tail end of the 2019 Atlantic Hurricane season, we could still see development going into the end of the year. On this day 7 years ago Hurricane Sandy made landfall on the US mainland and went on to be the most destructive storm of the 2012 season.
WTI futures are testing support levels this morning helping keep the crude benchmark above $54.50. If broken there is little in the way to keep prices from threatening the $51 range. It’s a different story with refined products futures, facing a slew of resistance levels in between current prices and a likewise 6.5% drop.
Mid Selloff in Energy Prices
Profit-taking from last week’s rally is taking the credit for the mild selloff we are seeing in energy prices so far this morning. Gas and diesel are both down around half a cent per gallon while crude oil benchmarks are shedding 10-20 cents per barrel.
Tropical storm Olga came and went this weekend and brought tornadoes and heavy rainfall to the Louisiana and Mississippi coast. As of now it doesn’t look like there were any interruptions to energy operations due to the storm.
Baker Hughes reported a drop in active US oil production rigs last week, dropping the total active platforms to 696, the lowest level since Spring 2017. Just looking at the crude oil output chart you wouldn’t be able to tell there’s a clear downward trend in number of production units as output has consistently climbed (albeit with a few interruptions) since mid-2016.
Money managers added net length to both their WTI and Brent crude oil positions last week after reaching hitting the lowest levels of the year the week prior. Some technical indicators are lending more towards higher prices as prompt month refined product futures head into their last week of trading. It will be interesting to see if prices will continue their trek higher, which seems likely for today’s trading as the board has flipped into positive territory at the formal market open.
Energy Prices Are Stumbling To Start Friday's Trading
Just when it seemed like a technical breakout was underway, energy prices are stumbling to start Friday’s trading, putting a temporary damper on the upward enthusiasm after a strong showing this week. The big 4 petroleum contracts were all able to break and hold above their October highs in Thursday’s session, leaving room on the charts for a push towards the levels reached in the wake of the September attacks on Saudi infrastructure.
The early weakness is getting blamed on new economic concerns, although it is just as likely to be caused by profit taking by those suspicious of this market’s staying power. If today’s early losses hang on through the close, yesterday’s highs start to look like a bull trap as the seasonal window for a substantial price rally is quickly closing.
There’s a system churning through the Gulf of Mexico that’s given a 70% chance of becoming a named storm by the NHC, and the early projections point it right at the heart of US refining. The good news is a cold front is (currently) expected to prevent this system from becoming a hurricane, but it will bring heavy rains to large parts of the US, with forecasts of 5” or more extending north all the way to the Tennessee valley for the weekend.
The EIA published a report on the issue of small refinery exemptions to the RFS this morning that’s worth reading for anyone looking for a bit more perspective on the issue than the typical lobbying efforts posing as news that have become common over the past few years.
Good news for Citgo: The US treasury granted the refiner a 3 month shield from a potential seizure by creditors, which is seen as an attempt to buy time to negotiate a better long term solution for the company caught up in the Venezuelan debacle.