After A Strong Start Wednesday, Energy Prices Saw Another Wave Of Heavy Selling
After a strong start Wednesday, energy prices saw another wave of heavy selling, which pushed most gasoline spot prices to their lowest levels since Russia invaded Ukraine. We’re seeing a similar pattern in the early going this morning as 9 cent overnight gains for RBOB futures have shrunk to 2 cents in the past couple of hours, and diesel prices are flat after trading up nearly 7 cents overnight.
The pullback has products moving closer to their weekly trend-lines, but we’ll still need to see another 7-8 cent decline for gasoline and 10-12 cents for diesel before the bullish trend faces a real threat.
The waves of selling may have to do more with concerns about the FED’s war on inflation, and another announced SPR release (half of which the US already announced last week) than it does on near term fundamentals, because the DOE’s weekly report continued to provide plenty of data points to prove just how tight the supply network is relative to the past 10 years.
Diesel inventories did see small increases for a 2nd straight week, but remain well below their seasonal range, and imports of distillates reached a 9 month low reminding us that help is not on the way. Not surprising given the $7 price tag around New York, jet fuel supplies are also dropping well below their seasonal range and giving us the most eye opening example of the logistical challenges being experienced by shippers these days. (See DOE charts below)
Good news: US refiners are running at pre-pandemic rates, keeping the country in a relatively strong position vs many countries struggling to find supply these days. The bad news is refinery utilization is in the mid 90s already, which is at the top end of its seasonal range, and suggests that there may not be much more left to give as we enter the driving season, and any refinery disruptions (don’t say Hurricane) are going to be magnified as a result.
Other good news for those that want to see prices pull back is that US crude oil output was estimated to increase by 100mb/day for a 2nd straight week, reaching a post-pandemic high of 11.8 million barrels/day.
A few interesting reads on how the supply dominoes are falling globally. How Chinese teapot refineries are flying under the radar buying Russian Crude. How India is replacing higher premium Saudi Barrels with discounted Russian supply.
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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.
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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.