Big Reversal Underway In Energy Futures

Market TalkMonday, Mar 8 2021
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A big reversal is underway in energy futures that are trading lower this morning after an overnight price spike. So far, the selling is relatively minor, and hasn’t threatened the upward-sloping trend lines that have held this rally for more than four months. While a pullback is warranted given the markets’ overbought condition, we saw multiple similar selloffs fail to pick up steam in last week’s big rally, and we’ll need to see product prices dip another nickel or more before we can say this time is different.

News that the Houthi rebels had launched another coordinated missile and drone attack on Saudi Arabian oil assets Sunday had the market spiking overnight, with oil prices up $2/barrel and products up more than 4 cents/gallon. All contracts reached new 12+ month highs in the overnight session, with WTI trading at its highest level since October 2018 and RBOB reaching its highest since April of 2019. The gains proved short lived however as the Saudi facilities are reportedly continuing to operate with minimal disruption, giving buyers reason to doubt the sustainability of current prices after the furious rally in recent weeks.

The great refinery recovery is progressing, with multiple units reported to be initiating restart over the past few days, but supplies remain tight across the gulf coast, causing some slowdowns in pipeline batches that is causing more markets across the country to feel the impact of February’s polar plunge. Rare shipments of gasoline from Europe to the U.S. Gulf Coast are in route, and should help keep the runouts contained.

Money managers are starting to build short positions in WTI and RBOB, cutting the net length held in those contracts modestly on the week. ULSD is a different story with a large increase in new length added last week, betting on higher prices even though diesel values have already nearly doubled in the past four months. The CFTC’s report data is compiled on Tuesday, which means the new shorts got a rude welcome from the huge rally in the back half of the week while the diesel buyers were rewarded.

Baker Hughes reported a net increase of one oil rig drilling in the U.S. last week, with the Permian basin adding three rigs, the Barnett adding one (its only active oil rig) while Williston declined by one and other smaller basins declined by two. The total U.S. count at 310, is at its highest level since the first week of May 2020, but remains 540 rigs lower than where it was 2 years ago, even as oil prices are 10% higher today than they were then.

The Dallas FED released a study last week with projections for Permian production following the anticipated restrictions on Federal lands. The report projects that total output will likely decline by 230mb-490mb per day, most of which will hit New Mexico drillers since all of Texas’ fields are on private or state land.

The EIA this morning reported on the growing role of U.S. Propane exports, which surpassed total diesel exports in 2020. Most of the propane exports are heading to Asia to meet growing demand for heating and petrochemicals, a reminder that the expected growth in petroleum in the coming decades is not likely to be from transportation. 

Click here to download a PDF of today's TACenergy Market Talk.

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Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action