Back And Forth Trading Continues For Energy Contracts
Back and forth trading continues for energy contracts as traders wind down positions ahead of the holidays and liquidity quickly runs dry. Thursday’s session featured a 4-cent bounce from ULSD off of its morning lows, and already overnight we saw 3.5 cent gains erased, only to bounce once again just before 8am. RBOB futures dropped 4-cents Thursday but are up almost 4-cents this morning.
Oil futures came under a bit of selling pressure Thursday after Angola announced it was leaving OPEC in a dispute over the cartel’s quotas. While the west African nation makes up just 3.5% of OPEC’s production, it’s yet another sign that the group has problems ahead as it tries to limit output. Don’t worry about the cartel disbanding anytime soon however, as Brazil is set to join OPEC next month.
The Red Sea has been relatively quiet since the US announced its coalition to combat attacks on ships in the region, but shipping companies appear to be content to take the long way around Africa for now.
The most notable cash market action Thursday came in San Francisco as spot gasoline continued to see a strong rally following a weekend upset at the PBF Martinez refinery that led to citations and ongoing protests outside the facility.
While refined products appear to be stuck in neutral short term, ethanol prices continue to slide, approaching 3-year lows this week as a bumper corn crop and slight hope for new mandates in the US puts downward pressure on the 198-proof alcohol turned fuel.
Futures will be completely closed to trading the next two Mondays as Christmas and New Years are two of only 3 holidays each year when the Nymex completely closes its electronic trading platform. That means prices set tonight will carry through Tuesday without concern with what could happen in electronic trading.
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News & Views
View AllWeek 18 - US DOE Inventory Recap
Crude Oil, Gasoline, And Diesel Benchmarks Are All Trading >1% Lower To Start The Day
Energy prices are sinking again this morning, albeit with a little more conviction than yesterday’s lackadaisical wilting. Crude oil, gasoline, and diesel benchmarks are all trading >1% lower to start the day with headlines pointing to an across-the-board build in national inventories as the source for this morning’s bearish sentiment. The Department of Energy’s official report is due out at its regular time this morning (9:30am CDT).
WTI has broken below its 100-day moving average this morning as it fleshed out the downward trend that began early last month. While crossing this technical threshold may not be significant in and of itself (it happened multiple times back in February), the fact that it coincides with the weekly and monthly charts also breaking below a handful of their respective moving averages paints a pretty bearish picture in the short term. The door is open for prices to drop down to $75 per barrel in the next couple weeks.
Shortly after the EIA’s weekly data showed U.S. commercial crude inventories surpassing 2023 levels for the first time this year, their monthly short-term energy outlook is forecasting a fall back to the bottom end of the 5-year range by August due to increasing refinery runs over the period. However, afterward the administration expects a rise in inventories into 2025, citing continued production increases and loosening global markets hindering the incentive to send those excess barrels overseas. The agency also cut back their average gas and diesel price forecasts for the first time since February with the biggest reductions in the second and third quarter of this year.
The STEO also featured their famed price prediction for WTI, stating with 95% confidence that the price for crude oil will be between $40 and $140 through 2026.
Need a general indication of the global crude oil supply? Most headlines seem to be covering a shortage of a different type of oil, one that we haven’t turned into fuel (yet).
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The Perceived Cooling Of Regional Tensions In The Middle East Area Attributing To The Quiet Start To Today’s Trading Session
The energy complex is drifting lower this morning with RBOB futures outpacing its counterparts, trading -.9% lower so far to start the day. The oils (WTI, Brent, heating) are down only .2%-.3% so far this morning.
The perceived cooling of regional tensions in the Middle East area attributing to the quiet start to today’s trading session, despite Israel’s seizure of an important border crossing. A ceasefire/hostage-release agreement was proposed Monday, and accepted by Hamas, but rejected by Israel as they seemingly pushed ahead with their Rafah offensive.
U.S. oil and natural gas production both hit record highs in 2023 and continue to rise in 2024, with oil output currently standing at 13.12 million barrels per day and January 2024 natural gas production slightly exceeding the previous year. With WTI currently changing hands at higher than year-ago levels, this increased production trend is expected to continue despite a decrease in rigs drilling for these resources.
Less than a week after the Senate Budget Committee’s hearing centered on the credibility of big oil’s climate preservation efforts, a major oil company was reported to have sold millions of carbon capture credits, without capturing any carbon. Fraud surrounding government subsidies to push climate-conscious fuel initiatives is nothing new, on a small scale, but it will be interesting to see how much (if any) of the book is thrown at a major refiner.
Today’s interesting read: sourcing hydrogen for refining.
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