A Combination Of Global Economic Factors Seem To Be Battling For Purchase In The Energy Futures Markets This Morning
A combination of global economic factors seem to be battling for purchase in the energy futures markets this morning. A drop in oil exports from Saudi Arabia and Russia seem to be applying bullish pressure while a sluggish economic outlook for China seems to be reason enough for some to paint the market a little more ursine. As of now, prompt month RBOB futures are down less than 1%, HO hovers around breakeven, and WTI is up a slight 70 cents per barrel.
Money managers cut their net positions in diesel futures last week, perhaps figuring the party is over after the 7-week run-up ended on Friday. They remained bullish on Gasoil however, cutting short positions aggressively. New short bets on American crude oil emerged, which might either explain or exacerbate the downward price trend we’ve seen in WTI over the past week and a half.
Baker Hughes reported a net decrease in operating oil production rigs last week, dropping the total down to 520 for the first time since February of last year.
Three storms in the Atlantic were named this weekend but Emily, Franklin, and Gert are all expected to stay out to sea, avoiding the US mainland. It’s the unnamed system churning in the Gulf that most have their eyes on now. The storm has an 80% chance of cyclonic development over the next 48 hours and looks to be headed towards the southern tip of Texas, possibly as north as Corpus Christi.
Tropical Storm Hillary made landfall in Mexico and disorganized over California this weekend, but the post-tropical remnants are dumping record amounts of rain in the region, leading to flash flooding. As if the storm wasn’t enough, a 5.1 magnitude earthquake also hit the area yesterday. There has been no significant damage reported as of this morning.
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View AllThe 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.