A Mixed Bag To Start The Week

Market TalkMonday, Aug 3 2020
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It’s a mixed bag to start the week for energy prices with modest overnight losses turning to small gains for refined products while crude oil prices continue going nowhere. 

While WTI and ULSD futures remain entrenched in their sideways trading pattern, RBOB gasoline futures are teetering on the edge of a breakdown that could send prices below the one dollar mark. With the summer driving season coming to an end, more questions than answers on the outlook for reopening this fall, and inventories holding near record high levels, it’s easy to make a fundamental argument for weaker gasoline prices as we start the RVP transition. That sets up an interesting test for early August trading, will RBOB’s weakness pull the rest of the petroleum contracts lower, or will gasoline avoid a collapse due to the strength in crude and diesel?

Right on cue, RBOB prices have bounced more than three cents from their overnight lows, although it’s unclear so far what’s driving that recovery. It could be some news in the past couple days of refinery closures, the storm heading up the eastern seaboard, or perhaps just a bit of bottom fishing after prices have reached their lowest levels in a month.  

Marathon had several big news items to go along with its Q2 earnings report. The company announced it was indefinitely idling the Martinez, CA and Gallup, NM plants that had been closed due to COVID demand impacts, and had finally reached a deal to sell its Speedway retail chain to 7-11’s parent company. It’s worth noting that Marathon is considering transitioning the Martinez plant and its Dickinson, ND plant to renewable diesel facilities, similar to what Holly announced for its Cheyenne, WY facility recently.

In addition to those closures, several reports are confirming that Calcasieu Refining began idling its LA facility over the weekend due to the demand/margin impacts of COVID. Several of the Q2 earnings calls suggest the industry expects more of these closures to happen before the pandemic is past, but for now everyone is just guessing where the next one might be.

Hurricane Isaias has stayed far enough offshore as it moved up the east coast of Florida to spare that state from the worst of its damaging winds and storm surge, but now is expected to hit the Carolina's overnight and then dump large amounts of rain all along the east coast into New England. Given the major population centers now in the storm’s sites, this system could be a demand killer as even more drivers will stay at home for day or two as it passes. There’s another system the NHC is giving a 60 percent chance of formation this week, but so far that system is expected to stay out to sea and not hit the U.S.

After reporting the first increase in more than three months in last week’s report, Baker Hughes reported the U.S. oil rig count decreased by one in its latest release. The Permian basin saw its count drop by two rigs, while the Bakken saw a one rig increase, the first tick higher in that basin since January.

Money managers continue to be hesitant about petroleum contracts, making small reductions in WTI, Brent, RBOB and Gasoil net length, while ULSD saw a minor reduction in its net short position.  Brent Open interest dropped nearly six percent on the week, as producers lowered their hedge positions to the lowest levels in more than four years. That reduction in producer shorts suggests that either the industry is willing to bet prices probably won’t fall from current levels, or that they don’t plan on producing as much in the near term. 

Click here to download a PDF of today's TACenergy Market Talk.

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Market TalkMonday, Oct 2 2023

Gasoline 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.

Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.