Brewing Storms, Both Literal And Figurative Are Stirring Up Energy Markets For A 4th Straight Day
Brewing storms, both literal and figurative are stirring up energy markets for a 4th straight day, sending refined products and WTI to yet another round of 7 year highs this morning.
A powerful winter storm is heading for the east coast, and the “Bomb Cyclone” warnings have sparked a round of panic buying that we haven’t witness since the dreaded Polar Vortex of 2014, which was (coincidentally?) the last time fuel prices were this high. Why gasoline prices are joining the run up this morning when so millions of cars will be unable to drive for days is always a bit of a mystery, but once the snowball effect of buying in energy markets gets rolling, all bets are off.
Speaking of which, the February Heating Oil contract – which expires Monday – is breaking free from the pack of surging energy prices, trading 9 cents higher than the March contract this morning north of $2.86, a gain of 26 cents since last Friday. With less than 2 days until expiration, don’t be surprised to see some even more volatile swings in that contract, and a spike to $3 in the next two sessions is a real possibility.
Meanwhile, the figurative storm brewing around the Ukraine continues, with more signs of escalation keeping markets on edge. The US is working with energy producers to come up with backup plans to supply Europe with supplemental fuel should Russia continue to use its Natural Gas and Oil exports as its most powerful weapon in this war.
Help is on the way? A big story over the past several months was the expectation that OPEC and other producers would regain the upper hand and global oil supplies would begin building again after an 18 month decline. So far that hasn’t proved true as various disruptions and supply chain bottlenecks have limited output. The EIA this morning published a note doubling down on the theory that OPEC’s production will have its largest increase in nearly 20 years despite the headwinds in Libya and elsewhere, which may eventually help prices to collapse back to more comfortable levels. The big question in the meantime is how high will they spike until the supply reinforcements arrive later in the year.
While the world anxiously awaits a solution to the lack of adequate petroleum supplies in 2022, the even slower supply race for a lower carbon energy solution continues with plenty of new ideas hitting the market daily, but little if anything that will change the outlook soon. Yesterday we saw word from Valero that Sustainable Aviation Fuels were still not economically viable, particularly given the competition for renewable feedstocks, and a report that Marathon was considering buying the idled P66 refinery in LA to convert it to renewable production, which will continue to add pressure on the feedstock market if it actually happens.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline 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.