Buyers Stepped In
Just as oil prices found themselves on the cusp of a technical breakdown after 2 days of heavy selling, buyers stepped in to keep prices within their trading range. Middle east tensions are getting credit in the headlines for the modest Wednesday bounce, while some bearish inventory data seems to be keeping the recovery rally from picking up too much steam.
Iran is dealing with widespread and violent protests after the government raised domestic fuel prices and announced a fuel rationing program. In addition, the US sent a carrier group through the strait of Hormuz Tuesday, adding to the regional tension that some feel will hit a boiling point in the not-too-distant future.
The API was said to show a build of just under 6 million barrels in US crude oil inventories last week, along with a 3.3 million barrel increase in gasoline stocks. Distillate inventories declined by 2.2 million barrels, which helps explain the early relative strength in ULSD futures. The DOE’s weekly status report is due out at its regular time this morning.
The return to earth for California’s wholesale gasoline prices is nearly complete after a wild fall season. LA spot CARBOB basis diffs are still around 8-10 cents over RBOB futures, but are a far cry from the 60+ cent premiums just 2 weeks ago, or the dollar plus premiums from September. While the basis collapse should bring welcome news for consumers, there have been more reports of refinery issues this week that could keep the regional volatility elevated into the winter.
The early selling to start the week put both WTI and Brent futures on the cusp of breaking their 7-week upward trend, which suggests we could see another 5-7% more downside near term if that support breaks in the next few days. If that support holds however, it looks like we’re due for another test of the top end of the range next week.
A technical breakdown would be more bad news for US shale oil producers, already struggling through an extended slump. This downturn is having ripple effects across other sectors from sand production to machine manufacturing.
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.