After A Sizeable Selloff Tuesday, Energy Futures Are Rallying Once Again
After a sizeable selloff Tuesday, energy futures are rallying once again, following the daily price teeter totter of Russian sanctions restricting supply vs COVID Lockdowns restricting demand, with the supply concerns given an edge most days. A new wrinkle this morning that may be nothing, or could end up as the next excuse for prices to rally, Gazprom’s website was taken down by an apparent hack this morning, which could end up (either directly or indirectly) restricting natural gas flows to Europe.
The US dollar reached a 2 year high Tuesday as the FED continues to signal a strong stance to combat inflation. Most years the dollar has a negative correlation with commodity prices as a stronger dollar makes oil and other contracts relatively more expensive for international buyers. The past year however has seen the opposite as the flight to safety and anti-inflation influences are caused by many of the same challenges that are pushing commodity prices higher.
A couple of noteworthy items on the HO (ULSD) futures chart this week.
First, the 25 cent gap on the daily chart left behind by the expiring April contract (thanks to the extreme backwardation giving most traders heartburn the past two months) took less than 3 days to be filled. Second, there’s a large symmetrical triangle pattern forming on the charts, that favors another run at $4 diesel later in April if the theory that those patterns will lead to a break out in the same trend direction they started in proves true.
The API reported small changes in US fuel inventories last week, with crude stocks up about 1 million barrels, diesel up about ½ million, and gasoline stocks down about ½ million. The DOE’s report is due out at its normal time. Items to watch this week are PADD 1 inventories to see if there may be a change in the extreme backwardation in ULSD futures (or an end to the insanity of $7 Jet fuel prices) and the import/export flows as the world continues to try and adjust to the missing Russian cargoes.
An EIA note this morning highlighted the growing demand for ethane, which is outpacing the growth of all other petroleum products in the US. That note is a good reminder of how the “other” uses of petroleum products, like clothing production, continue to increase since many still don’t realize the connection to the fossil fuels they want to do away with that are much more visible in transportation fuels.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline 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.
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.
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.