A Volatile Week For Energy Prices
It’s been a volatile week for energy prices that reached new multi-year highs Wednesday, only to see prices pull back the past two days. Despite the selling since Wednesday morning, most contracts are still up for the week, keeping the bullish trends intact, even as the shorter term indicators are suggesting prices have topped out.
The April payroll report showed far fewer jobs added in April than many expected (+266k vs estimates north of 1 million) while the March estimate was revised lower. The official unemployment rate ticked up slightly to 6.1%, while the U6 rate ticked lower to 10.4%.
Stock futures jumped (and treasury yields dropped) following the report as the “bad-news is good-news” trade appears to be alive and well when free money is the drug of choice in the market. Concerns that an overheating economy and inflation of several varieties will force the FED to start raising rates (or stop other asset purchases) earlier than expected were soothed by the fact that fewer Americans found jobs last month. Energy prices did briefly follow stocks with some buying immediately after the report, but have since resumed their selling.
The national numbers seem to contradict a Dallas Fed study released earlier in the week that showed that economic activity (and hiring) is surging across the state, which is creating another layer of inflation as companies are already seeing wage inflation. (charts below)
The runaway RIN & ethanol markets continues to smash records this week. 6 months ago, D6 ethanol RINs reached a multi-year high at $.70/RIN, and then yesterday they set (another) all time high north of $1.70/RIN, while D4 RINs broke north of $1.80 for the first time ever. Gasoline prices are now trading 50 cents or more below spot ethanol prices, but after adjusting for the RIN value, there’s still more than a $1/gallon positive spread between gasoline and its alcoholic blending companion.
Here’s an interesting read on why rice prices haven’t followed other grains in the historic rally over the past few months. Cliff notes version: it’s because they don’t use rice to make fuel or feed pigs.
Another sign of economic recovery: The Association of American Railroads report showed a 3rd straight week of increased traffic, and a 3rd straight week of levels above those in the same week in 2019, and almost all categories have now returned to pre-COVID levels.
Read here for more details over the Clean Energy/Amazon partnership to use more renewable natural gas by the rapidly growing fleet of delivery vehicles.
Click here to download a PDF of today’s TACenergy Market Talk.
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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.