August Futures Up More Than 40 Cents/Gallon From Their 4th Of July Lows
After a 1-day pullback, the rally has resumed for refined products as we await the latest FOMC announcement and the DOE weekly stats.
Gasoline prices have now increased in 12 of the past 15 trading sessions, bringing August futures up more than 40 cents/gallon from their 4th of July lows.
ULSD prices managed to recover all of the early losses and finish with slight gains on the day, marking a 6th consecutive session of increases, with today making 7 if prices hold in the green. In addition to the bounce in futures we’ve seen some heavy buying in physical markets as well this week, with LA spot diesel hitting the highest basis values of the year, while Chicago ULSD has rallied to single digit discounts to ULSD futures after trading 30+ cents below earlier in the month.
The rally in refined products has pushed crack spreads to their highest levels since March, which is welcome news for refiners who have suddenly felt a bit of a reality check with supplies and margins returning to more normal levels in recent weeks. Then again, you have to be operating a refinery to enjoy the recent rally, and numerous unplanned outages – like this one in Memphis - have contributed to the move higher, so not everyone is celebrating.
While refined products march higher, oil bulls aren’t quite ready to push prices north of $80, rallying to within a dime of that mark Tuesday before pulling back by more than $1/barrel. If the bulls can sustain a push above $80, there’s not much on the charts to stop a run at $90 in the back half of the year, with April’s high of $83.53 the only meaningful layer of prior resistance on the weekly chart. If we see oil prices fail to sustain this rally however, they will soon act as a major headwind to the rally in products given the extra refining capacity brought online around the world in the past year.
Speaking of which, it looks like the zombie refinery FKA Hovensa and Limetree bay may be given another chance to come back to life after a court ruled the EPA overstepped its authority (shocking) in requiring new permits before letting the new owners attempt to restart the facility.
You can’t make this up: protesters in Scotland concreted themselves to a road to block the country’s only refinery to protest its GHG emissions. Perhaps for their next trick the group will dump oil on the ground to protest the extreme amounts of CO2 released by concrete.
The API reported builds in crude oil and diesel inventories of 1.3 and 1.6 million barrels respectively, while gasoline stocks dropped by 1 million barrels last week. The DOE’s weekly report is due out at its normal time this morning.
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.