Bulls Own Control Of Energy Prices
The bulls have control of energy prices this week as Brent crude is making a run at $50, while WTI and ULSD futures are both threatening eight month highs, despite some of the most bearish inventory we’ve seen since the spring.
Yesterday’s DOE report showed the second largest weekly inventory build for U.S. crude oil stocks of the past 20 years, but after a few minutes of selling, the market resumed its slow and steady march higher, keeping the bullish trend intact. While the momentum clearly favors more upside near-term, as the market seems focused on where the economy should be next year rather than looking at the struggles it faces today, we’re approaching some critical technical resistance that will prove pivotal in the weeks to come.
The 15 million barrel build in crude oil stocks was shocking at first, but quickly shrugged off as an anomaly due to exports hitting a two year low last week, while imports surged by more than a million barrels a day, accounting for an 18 million increase in domestic stocks. Refinery rates were actually up, and trade flows are expected to normalize, suggesting this huge build will not last long. In addition, we’re approaching the 12/31 property tax deadline in TX, where a huge proportion of the country’s oil is stored, and companies will hold what they can off shore to avoid getting hit with extra taxes, so we may see a dramatic reversal in the import/export flows in the coming weeks.
Perhaps even more bearish than the crude oil build was the drop in demand for refined products, and the corresponding inventory builds. It’s not unusual to see gasoline stocks rise this time of year, but the pace of the increases, and the rapid demand destruction of the past two weeks, suggests we’ll soon reach another breaking point where refiners will be forced to make more rate cuts. Speaking of which, lost in the big headline builds, was a decline in U.S. refining capacity of 230mb/day, which dropped the country’s total to the lowest level in four years. This was the second decline of this size so far this year (the first was when the PES capacity was finally removed from the weekly report) and marks the biggest annual decline in over a decade. This decline is not over however as there are still several more plants scheduled to be taken out of service in the coming year.
Another parting shot in the political battle over oil drilling: The outgoing White House administration is opening up California oil leases for the first time in eight years. The question is, given the current price environment, and the Golden State’s war on refiners, will anyone be interested in buying?
Click here to download a PDF of today's TACenergy Market Talk.
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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.
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.