Bulls Aren’t Giving Up Control Of This Market Just Yet
We saw a big pullback in energy prices over the past 24 hours, but a 5 cent bounce from overnight lows suggests the bulls aren’t giving up control of this market just yet.
Wednesday’s trading created an outside down pattern on the daily charts after setting a new 7 year high overnight, only to end the day with a lower low than the previous session. That type of bar is known to be a classic reversal pattern that sets up more selling at the end of a rally, and that’s exactly what we got overnight with products dropping another 5-6 cents from the settlement, which marks a decline of 12-15 cents from the highs set just 24 hours earlier.
Now the fun begins as prices have bounced nearly 6 cents off of trend line support based on the huge rally over the past 3 weeks, suggesting this selloff was more profit taking after the market was severely overbought, and not a reversal in trend. As long as we see products hold above those overnight lows ($2.25 for RBOB and $2.35 for ULSD) there’s an argument to be made that the upward trend is still alive and should favor higher prices in the weeks to come. IF that trend breaks, expect another 10 cents of downside in short order.
For what it’s worth, the big physical traders don’t appear to be buying the big run-up in futures, with basis values for gasoline in particular and diesel to a lesser degree sliding this week. Speaking of which, it’s been a bad week for spills, with a tank leak at the 2nd largest refinery in the country making for some eye popping videos, but the market shrugged it off as the oil is contained in the berm system designed for just this type of event and operations at the refinery don’t seem to be impacted. Similarly, LA-area refiners don’t appear to be facing shortfalls from the pipeline leak that’s been headline news for the past several days as prices in the market haven’t flinched. Meanwhile, Kinder Morgan’s refined products pipeline FKA Plantation remains closed until the weekend due to a spill in Alabama. Originally that line was scheduled to come back online Wednesday, but restart has been delayed until the weekend as it appears a cause of the spill is still under investigation. Allocations at terminals along the line have tightened up, and some outages are occurring, but so far the impact is relatively contained.
The EIA published its annual world energy outlook Wednesday. The highlight (or lowlight depending on your perspective) of the report was that despite the bandwagon effect of net-zero by 2050 claims, production of oil, nat gas, and even coal, is expected to continue growing for the next 30 years as emerging markets – primarily in Asia - continue to drive demand. That report is a harsh reality check for those aiming to end fossil fuel usage.
Not much exciting from yesterday’s DOE status report. Total US refinery runs did surpass 2019 levels for this time of the year, marking the first week since the start of COVID we’ve seen that. Run rates were up in 4 out of 5 PADDs for a 2nd week, as plants seem to be returning from fall maintenance and taking advantage of the unplanned downtime at 2 gulf coast plants since Ida knocked them offline.
The tropics remain quiet, with no expected storms to be named over the next 5 days according to the NHC.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
Week 39 - US DOE Inventory Recap
Crude Oil Futures Are Leading The Energy Complex Higher This Morning With WTI Jumping 2% And Exchanging Hands Above The $92
Social Media
News & Views
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.