Bulls Have Taken Back Control Of Energy Markets
The bulls have taken back control of the energy markets after a choppy start to the week, with oil prices up more than $2/barrel since Wednesday morning and products up 7-8 cents/gallon. The timing of the rally coincided with the weekly DOE inventory report, although there were plenty of mixed signals in that fundamental data. The timing of the rally also seems to match US stocks finding their footing after some signals that the US/China trade war might be taking a short term breather.
There were not any new developments on the Middle East tensions that appear to be aiding in today’s rally, so it could just be that with fear of a stock collapse no longer influencing prices, the bulls are free to run. Whatever the cause, energy futures now seem poised to test their April highs after surviving a test of longer-term support over the past 2 weeks.
The bullish reaction in products seems to be ignoring a sharp drop in total US Petroleum demand, which dropped by almost 1 million barrels/day last week, although give the volatility in those weekly estimates, it’s hard to blame anyone for shrugging off that data point. Case in point: The gasoline demand estimate for the week dropped from one of the 3 highest weekly figures on record, to a level we haven’t seen in May for the past 4 years. Given the 8 cent rally in RBOB futures since the report, it’s clear that traders aren’t yet too concerned with that estimate.
If you want to find gasoline in the US, there’s plenty in the Gulf Coast (PADD 3) but all other PADDs are below average with the Midwest (PADD 2) and West Coast (PADD 5) both seeing levels below their seasonal 5 year range. Those diverging inventory stats has been reflected in the wide price spreads between regions, and looks like it may remain for a while longer as Gulf Coast refinery runs seem to be healing faster than the other locations.
US Crude oil stocks reached their highest level since September 2017 last week, but US oil production dipped for a 2nd straight week, pulling back to 12.1 million barrels/day from the record high of 12.3.
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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.
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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.