Back And Forth Continues
The back and forth continues after Thursday’s early sell-off was rejected and prices have trickled higher overnight. With the latest bounce we’re just 1 strong day away from the December highs, and if those levels are broken, we could see another 10% increase in short order.
The IEA released its monthly oil market report this morning, and is holding both its supply and demand forecasts steady for the next year. The agency is suggesting that the OPEC & Russia cuts have put a “qualified” floor under the oil market, but recognizes that, “…the journey to a balanced market will take time, and is more likely to be a marathon than a sprint.” That’s a good reminder why it pays to watch weekly charts, rather than just shorter term charts, to avoid getting caught up in the noise.
While the IEA is projecting the US will take the crown of the world’s largest oil producer this year it’s monthly highlights end on a bit of an ominous note. The agency is expecting the largest increase in global refining capacity in 40 years amid already weak gasoline margins, soft demand, and uncertainty over the IMO’s diesel specs. “By the end of the year, all industry players, upstream and downstream, may feel as if they have run a marathon.”
Another headwind for several US refiners: Their built in head-start from cheap Canadian imports seems to be going away.
Western Canadian crude prices have stormed back from a $13/barrel quagmire 2 months ago, to trading around $43/barrel this week, marking the smallest discount to WTI in nearly a decade. The mandatory output cuts announced by Alberta and additional rail outlets are getting credit for the increase, although the high run rates by US refiners in the mid-continent are no-doubt helping the rally as well.
Another factor that helping drive up the price of Canadian heavy grades are the potential sanctions on Venezuela that is reported to have Gulf Coast refiners scrambling to find similar grades to keep their refineries running as planned.
Keep an eye on the FERC investigation announced this week into 3 natural gas pipelines. While this won’t have any impact on crude or refined products near term, the long-term implications for pipeline operators could continue to shake up the midstream industry.
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Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
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Gasoline 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.