Another Day Of Heavy Selling In Energy Contracts

Market TalkMonday, Aug 9 2021
Pivotal Week For Price Action

It’s another day of heavy selling in energy contracts, with refined products now down 17 cents or more so far in August. As has been the case for most of the past 18 months, demand fears from the latest rise in COVID cases is taking much of the blame for the latest wave of selling. The charts meanwhile had been hinting for some time that a substantial pullback may be coming after a 9 month rally finally appeared to have stalled out.  

The big test this week looks to be the July lows which WTI has already broken below this morning, putting the contract at risk of a drop to $62 in short order. Refined products still have some work to do to get close to those lows ($1.96 for ULSD and $2.07 for RBOB) which could create a bit of a technical tug of war between crude and its products.

Speaking of which, money managers (aka hedge funds) continue to struggle with timing on refined product trades. The latest CFTC COT report showed funds increasing their net length (bets on higher prices) last week, just in time for the latest round of heavy selling. Distillates in particular look troublesome for the large speculators, as the length held in HO contracts reached a 3 year high last week, and may add to the selling pressure if that length is forced to liquidate by margin calls. The performance in crude oil bets has been better, with WTI net length reaching a 9 month low ahead of this sell-off.

Baker Hughes reported a net increase of 2 oil rigs operating in the US last week, offsetting the drop we saw in the previous week. Don’t expect this stagnation in drilling activity to cause a drop in oil production however, as a Rystad energy report last week detailed that drilled by uncompleted (DUC) wells have dropped to an 8 year low as producers are choosing to work through their backlog before focusing on drilling new wells.

The recent spike in West Coast basis values should be drawing imports of refined products to Northern California and PNW ports, but they may soon find competition from Mexican buyers if a weekend fire at the country’s largest refinery disrupts operations. The country has been walking back its plans to open up its fuel market, trying to give PEMEX back control of the nation’s fuel supply, and events like this fire show that ultimately the country will need outside help.

storm system moving towards the Caribbean is given 70% odds of being named this week, with a good chance that it will head towards Florida, which would keep it east of the oil production and refinery centers in the Gulf of Mexico. A 2nd system right behind the first is given 20% odds of development, and we’ve reached the time of year where it will be rare not to have some system we’ll need to watch daily.

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

Market Update (01A) 8.9.21

News & Views

View All
Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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