Market Talk - 2021 november
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Look Out Below? Energy And Equity Futures Are Pointed Sharply Lower Again
Look out below? Energy and equity futures are pointed sharply lower again Tuesday after Monday’s recovery rally started to fall apart in the afternoon hours. Omicron is once again getting credit for most of the selling, after Moderna’s CEO shared a much more pessimistic outlook for the variant than Pfizer’s CEO did Monday.
It’s the last trading day for December RBOB and ULSD contracts, and at this point, and given the heavy selling and backwardation in the market, we’re likely to see the January contracts take over the prompt position at prices we haven’t seen in 6 months or more. Already January RBOB is trading at $1.96, pushing several cash markets across the US to levels we haven’t seen since the spring RVP transition. ULSD futures meanwhile have already taken out Friday’s low trades, leaving the door open for another big push lower that may see diesel trading below the $2 mark this week as well.
The pullback in prices, and the post-holiday demand drop has also wiped out the premium to ship gasoline from the Gulf Coast to the New York harbor in just a few sessions. No such relief in ethanol however, as logistical bottlenecks keep prompt prices near the $4/gallon mark even as gasoline prices have crumbled.
It’s not just consumers who will enjoy the big drop in fuel prices: There was a big increase in new short positions in ULSD, WTI and Gasoil contracts last week ahead of the selloff, which pushed the net length held by money managers lower. A key point to watch this week will be how that length held by hedge funds weathers the selloff, as a mass liquidation often has a snowball effect pushing prices even lower.
With charts continuing to point lower and fear driving the action, the best hope for the bulls this week may come from OPEC, who postponed their technical committee meeting this week to take more time to evaluate Omicron. The cartel could pause their plans to increase crude output each month to try and stop the selloff, especially since many of its members are struggling to reach their production quotas given the supply chain issues impacting just about every industry in just about every corner of the world.
Speaking of supply chain challenges, a Reuters story this morning suggests things are about to get worse for traditional oil and gas producers as more than 40% of survey participants said they plan to leave their job in the next 5 years, with more than half of those aiming to move into renewables.
Today is the last official day of the 2021 Atlantic Hurricane Season, which ended with a whimper after a busy start that saw all of the names in the original list get used up. While this season brought us Hurricane Ida, one of the worst hurricanes on record, which continues to have impacts on oil and refined product supplies in the Gulf Coast today, the supply network is breathing a bit of a sigh of relief that things weren’t worse after 18 months of seemingly non-stop disruptions.
Black Friday Took On A New Meaning This Year
Black Friday took on a new meaning this year as markets around the world were pummeled by fears of a new COVID variant that prompted new lockdowns and travel restrictions around the world. The petroleum futures complex ended Friday with its biggest daily selloff in 19 months (you may remember April 2020 when WTI traded in negative territory) but since spot markets were closed for Thanksgiving, the 12% drop in futures didn’t carry over to physical prices in the US yet.
This morning we’re seeing a sigh of relief rally in both energy futures and equity markets as the drug makers signal confidence that Omnicron can be dealt with in a relatively short time frame, although only about 1/3 of Friday’s losses have been erased so far, suggesting the market still has major concerns.
From a technical perspective, we’ve been saying for some time that refined product charts looked like they could get a 20-30 cent sell-off, we just didn’t expect to see it happen in a single day. Now that the big flush lower is in the rearview mirror and an 11 cent bounce has already happened, we’re set up with a new range to determine the direction of our next trend. If Friday’s lows get taken out ($2.02 for RBOB and $2.09 for ULSD) there’s a good chance we see another 20 cent drop. On the upside, we’ll need to see the previous support around the $2.18 range for RBOB and $2.26 for ULSD be surpassed to get the charts to a more neutral footing heading towards year end.
The CFTC’s weekly report on NYMEX positions was delayed due to the holiday and won’t be released until this afternoon, but Brent and Gasoil contracts both saw heavy liquidation by money managers, suggesting the big funds may have already been heading for the exits well before things got exciting last week. Keep in mind that the data released today will be as of Tuesday Nov 23, so we won’t see how traders weathered Friday’s storm until the end of this week.
In less exciting news, the attempt to put a Cap & Trade program on transportation fuels across New England seems to have failed as the governors of Massachusetts and Connecticut both signaled they would no longer support the plan known as TCI in the face of already high gasoline prices (and an election year).
Unplanned refinery downtime continues to create many challenges for regional supply networks with the refinery in Toledo OH reportedly needing months to make repairs after an explosion and fire last week, while the flooding that swept across the Pacific North West forced a plant in BC to shutter until crude supplies can be restored. Last week’s DOE report showed that many plants are returning after a busy fall maintenance schedule, which should help limit the impact of these latest disruptions.
Week 47 - US DOE Inventory Recap
The Strategic Petroleum Reserve Disappointed Markets Yesterday And Led To A ~4% Rally In Energy Prices
Well that didn’t work: the volumes announced to be released from the Strategic Petroleum Reserve disappointed markets yesterday and led to a ~4% rally in energy prices. Even with the addition of the oil being liquidated from a handful of Asian countries, the grand total returning to the market was less than expected. Prompt month European crude oil futures are exchanging hands over $82 per barrel, American WTI is trading around $78 this morning.
The Department of Energy published an interesting note including some details about the specifics of yesterday’s announcement.
The American Petroleum Institute estimated a 1.3 million barrel drop in national oil inventory levels last week, accompanied by the rare ‘no change’ in gasoline stocks and a tame draw-down of less than a million barrels of diesel. The DOE’s version of events will come out at its regular time today (10:30 EST).
In case you haven’t heard, retail gasoline prices are high. While it’s anticipated that many will stay home on turkey day, this year’s COVID recovery is likely to cause a 13% YOY increase in auto travelers. It will be great to see family, too bad it’ll be the most expensive to do so since 2012.
Prices are drifting lower this morning as the market adopts a ‘wait-and-see’ approach ahead of a possible response from OPEC+ following yesterday’s SPR release. The cartel is scheduled to meet next week and news surrounding the continuation, cessation, or alteration of their typical monthly increase of 400,000 barrels of oil supply will be closely watched.
The US Has Released 50 Million Barrels Of Oil From The Strategic Petroleum Reserve
The US has released 50 million barrels of oil from the Strategic Petroleum Reserve in an effort to cool the rally WTI futures that has been chugging along since April. The White House also claims the sale will be made in conjunction with similar releases by other countries including China, Great Britain, Japan, South Korea, and India. WTI futures are up a dollar on the news.
While the intent of an SPR release is to put a damper on to short-term supply disruptions, drivers in California won’t likely see any relief from record high gas prices in the near future. Oil supply isn’t the issue on the West Coast: below average gasoline stocks and refinery throughputs combined with recovering demand will keep prices high until refined product supplies catch up.
The premium on the Colonial gasoline pipeline has cooled off after hitting multiyear highs earlier this month. Steep backwardation in Northeast regional prices, suggesting a “product’s tight now but won’t be soon” economic outlook, are keeping a lid on gasoline linespace values while the backwardation in Gulf Coast diesel prices have the premium on diesel shipments poking their head into positive territory for the first time in years.
Refined product futures are up around 1.5% so far this morning, eyeing a run at a host of support-turned-resistance levels. As it stands now the downward trend we’ve seen in gas and diesel prices over the past month and a half is intact, albeit strained from this morning’s round of buying.
Gasoline And Diesel Prices Are Up Today While American And European Crude Oil Benchmarks Are Drifting
Refined product futures are drifting higher this morning, attempting to recover from last week’s selling that saw prices down 4% by the end of Friday. Gasoline and diesel prices are up around .5% today while American and European crude oil benchmarks are drifting lower to start the day.
The commitments of traders report showed a 10% drop in WTI net length held by hedge funds last week. Brent crude likewise saw a decline in long bets made by Money Managers for a sixth week in a row, lending credence to the idea that the recent trend of lower oil prices might be nearing completion.
Lower oil prices might not be the best this for everyone though: Baker Hughes reported yet another increase in active oil production platforms. Seven rigs started pumping last week, bringing the total active count to 563, 250+ more than were running this time last year.
The White House is set to announce its decision on the new Federal Reserve Chair this morning. While this might be one of the most important economic decisions Biden has made so far in his presidency, political factors might be taking the reigns in this nomination as the president seeks to secure support for his ~$2 trillion healthcare, education, and climate-change legislation.
Some technical oscillators are hinting at an oversold refined product futures market while weekly charts place both prompt month gasoline and diesel futures in a clearly defined downward trend. Lower prices are expected for both contracts with the $2 mark a viable price target in the near term.