Baker Hughes Reported A Decline Of 7 Oil Rigs Drilling In The US, While The Natural Gas Rig Count Held Steady
It’s another mixed bag for energy markets to start the week, with ULSD trying to follow through on its strong showing Friday, while RBOB is flat and WTI is trading modestly lower to start the day.
Natural gas prices have rebounded sharply in the past 4 days, reaching $2.69 overnight after trading as low as $1.96 last Wednesday. The restart of the Freeport export facility, and some forecast models calling for below average temps in March after a much warmer than normal winter are both getting credit for that rally, which is no doubt having some positive impact on ULSD prices which have rallied 15 cents since reaching their lowest levels in 13 months last week, just as natural gas prices were bottoming out.
The CFTC issued its first set of commitments of trader's data in nearly a month Friday, releasing data originally scheduled to be published from January 31. The agency hopes to get caught up with its reporting by Mid-March. In case you were wondering, the contracts directly impacted by the cyber-attack, based on the latest update were “IFED MISO IN RT Off-Peak and CME USD Malaysian Crude Palm Oil Calendar Spread contract markets”. Somehow, I think the world could have managed without seeing the COT data on those two contracts.
While we’re still a couple of weeks behind for NYMEX contracts, we can see the money flows in ICE Brent and Gasoil contracts, and no surprise there it’s been steady liquidation by hedge funds for diesel contracts so far in February as prices have crumbled.
Baker Hughes reported a decline of 7 oil rigs drilling in the US, while the natural gas rig count held steady. California, New Mexico, Oklahoma and West Virginia all had a decline of 2 or more rigs on the week, while Texas held steady. Canada looks like it has topped out for its winter drilling season, with a reduction of 5 rigs on the week.
Russia’s influence on European energy supplies continues to be a wild card, with changes continuing on a near daily basis. Over the weekend we saw reports that Russia was allowing shipments of crude from Kazakhstan to Germany to begin flowing after delaying them for several weeks only then to find out that Russia had cut off shipments to Poland due to “paperwork issues”. Neither event seemed to have much influence on futures prices but serve as a reminder that despite the relative calm that’s taken over markets so far in 2023, there are still plenty of unknowns in the global supply network this year.
The Deer Park TX refinery was forced to shut its smaller crude unit after a fire on Thursday, which was one of 3 fires to hit owner Pemex’s operations in the US and Mexico that day.
So far there are no reports of major issues at California refineries following the blizzard, although power outages in the region were numerous.
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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.