Another Monday Selloff For Energy Futures
It’s another Monday selloff for energy futures as traders had plenty of time over the weekend to get worried about how the rapid spread of the Delta variant might impact fuel demand. 4 out of the past 5 Mondays have seen gasoline prices drop at least 6 cents, and today’s early action threatens to do much more than that if we take out last Monday’s low trades near $2.17, which would open up another 10 cents of downside potential near term. ULSD looks like it has less of a technical trap door than RBOB, with near term support at $2.00 and $1.96.
Tropical storm Fred is about 100 miles off the Florida Panhandle this morning, and is expected to bring heavy rains across the South East after making landfall later today, but should not be a major factor on supply infrastructure. TS Grace was on track to hit Florida based on Friday’s models, then shifted west over the weekend and looked to be a threat to Houston Sunday, but the latest models have shifted West again and have it pointing towards Mexico, and not a refinery threat at all. Tropical Storm Henri is expected to be named later this morning, and is forecast to circle Bermuda, but doesn’t look to be a threat to the US coast at this time.
Money managers were bailing out of crude oil positions last week, but adding to length in refined products. The Net length in WTI dropped to its lowest level since November last week, after reaching a 3 year high in June. We have not yet seen a snowball effect of selling creating selling as speculators have to meet margin calls, when their bets on higher prices go wrong, but if WTI breaks below $65, that could be coming. ULSD length held by money managers pushed to the highest level since November 2018 last week, which probably means some hedge funds are wanting a do-over this morning.
Baker Hughes reported 10 more oil rigs were put to work last week, bringing the US total to a fresh 16 month high. The gains were spread across the country with the Williston basin adding 4 rigs, Eagle Ford 3, and 1 each for a few others including the Permian.
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.