Biggest Declines Of The Year For Some Stock Indices
Energy and equity markets are seeing a modest recovery bounce this morning after Monday’s heavy selling that saw the biggest declines of the year for some stock indices. Contagion fears and FED uncertainty continue to be the major themes roiling markets this week, but as the Volatility index chart below shows, those themes are bothering stock markets more than they are energy.
There’s an interesting phenomenon happening on the diesel forward curve over the past week. While prompt month prices hold near 3 year highs, values 1 year forward and beyond have dipped below where they were trading a month ago. That could be a sign that diesel producers (aka oil refiners) are getting comfortable locking in crack spreads at current levels as the net short position held by the producers & merchant trade category is hovering near a 3 year low. WTI is seeing a similar pricing phenomenon with the forward curve moving into a steeper backwardation.
Unlike diesel however, crude oil is not seeing hedging increases by producers. In fact, the producer/merchant category is net long WTI, and the swap dealer short position hasn’t moved much in several months, suggesting the price action has more to do with extended outages in the Gulf of Mexico from Ida, than a desire by producers to lock in values around $70, even though they were more willing to lock in a year ago when prices were only at $40.
Tropical Storms Peter & Rose continue to churn across the Atlantic, but don’t appear to be a threat to the US. The system that’s moving off the African coast is looking more ominous however, with 90% odds of developing into a storm named Sam, and on a path that gives increased odds of heading towards either the Gulf or East coast.
Shell agreed to sell its assets in the Permian basin to Conoco this week in a deal valued at $9.5 billion. This continues a trend of oil majors based in Europe rapidly shedding traditional assets in a move towards renewables, while US based majors seem to be taking a much more conservative approach to the energy transition.
Another day, another large selloff in Ethanol RINs, which reached a fresh 7 month low Monday, trading below $1.10/RIN for much of the day as the industry continues to wait on blending targets to be released.
Click here to download a PDF of today's TACenergy Market Talk.
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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.