Bearish Trio Of Factors Hammering Energy Prices
A bearish trio of fundamental, technical and trade factors are hammering energy prices, with most futures down another 2% this morning, marking 5-6% losses on the week, and 12-14% losses for the month.
The DOE inventory report got the selling started in earnest Thursday morning, as US crude output regained its all-time high at 12.3 million barrels/day, and inventories held steady even though oil exports once again surpassed 3 million barrels/day last week. To put that in perspective, all else being equal, if the US wasn’t allowed to export crude oil as in year’s past, inventories would have climbed by more than 21 million barrels in a week.
Gasoline demand figures were also disappointing, holding below their seasonal 5 year average for a 3rd straight week just in time for refinery runs to start increasing across all 5 PADDs. Reports that the Ozark pipeline which feeds Midwestern refineries was back online after a brief storm-induced shutdown added to the negative sentiment for products. The good news for refiners was the distillate demand rebounded sharply last week after a dismal 2 month stretch of below-average estimates.
If the DOE stats weren’t enough, a report that the US would allow countries to continue buying Iranian oil until they’d reached a negotiated limit seemed to also contribute to the tidal wave of selling Thursday afternoon, and no one seemed to notice when that report was rejected later in the evening.
Unlike Thursday’s collapse, this morning’s heavy selling seems to be tumbling stock markets that were shocked by the latest tariff threat, this time levied against Mexico, the United States’ largest trading partner, just as the new version of NAFTA was ready to be ratified. IF Mexico chooses to retaliate, it could be bearish for refined products as the US has been steadily exporting more fuel south, whereas in years past this could be bullish for prices when the US relied more on Mexican oil.
In addition to the tariff surprise, there’s a strong technical argument for the selling today after support layers broke in Thursday’s session, creating a snowball effect to the downside. It seems likely given the size of the move this week and the volumes traded that we’re witnessing a liquidation event for a good portion of the speculative longs that have built up so far in 2019.
So, where to from here? We are nearing some new layers of technical support that helped hold up prices last winter, so it would not be surprising to see the selling end – or at least take a break – right around current levels. Then again, if we are witnessing another mass liquidation of speculative funds, those sell-offs tend to overshoot, which could mean we see another $5 taken out of crude and 20 cents or more taken out of products in June.
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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.