Choppy Back And Forth Action Continues
Choppy back and forth action continues to be the theme for energy prices, but a late Tuesday sell-off after a strong morning has put the complex in danger of a breakdown that could push prices another 10% (or more) lower should chart support finally break. That said, we’ve seen prices test the bottom end of the trading range four times in the past three weeks and bounce each time, just as they seem to be doing so far this morning.
The weak close for refined products Tuesday that largely wiped out nickel+ gains earlier in the session looked prophetic two hours later in the afternoon when the API was reported to show large builds for gasoline and diesel inventories last week. The DOE’s weekly report is due out at its normal time this morning, with refinery runs still and gasoline demand estimates still must read data points.
The EIA released its short term energy outlook Tuesday, predicting that gasoline consumption will continue to rise through the summer driving season, but will fail to approach levels we saw in 2019. The report also predicts that U.S. crude oil output will steadily increase through 2022, but will remain nearly a million barrels/day below where we saw it prior to the pandemic.
After an extremely volatile couple of weeks, RINs have been relatively quiet so far this week, with both D4 and D6 values moving up “only” 2.5-3 cents the past two days. Meanwhile, there’s a new diva in the credit markets as California’s LCFS credits took a nosedive Tuesday, dropping $14/MT for some delivery timings before buyers stepped in, making the trading range for the day wider than it had been so far for the year. There was not any regulatory-type news to spark the move that pushed those credits to their lowest levels since last year’s lockdown first hit, but the selling was widespread across time frames, suggesting it may not be isolated to one large position being unwound, and there could be more downside ahead.
The spot/rack charts for ULSD below show the divergence in markets across the southwest following the extremely tight physical market in the region for most of the past two months. El Paso and Phoenix markets are now back hovering around break-even levels for shipping economics, while chronically constrained Las Vegas and Albuquerque are still seeing wide spreads as the pipelines that supply those locations just aren’t able to keep up.
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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.