Coiled Spring Effect Propels Prices Sharply Higher
Energy prices broke out of their month-long trading range Wednesday, and as is often the case when this happens, there’s a coiled spring effect that helps propel prices sharply higher once that range finally breaks. Bullish demand estimates took much of the credit for the rally that picked up strength following the DOE’s weekly report, and was able to sustain itself in spite of a pull-back in equity markets.
This is no runaway rally however as prices have pulled back modestly overnight (once again moving in the opposite direction of U.S. equity markets) setting up a big test for prices to end the week. If we stay above the range, there’s room to run another 10-12 cents higher in the back half of the month, but if we see a selloff the next two days, then Wednesday’s action looks like a bull trap.
The DOE report also showed a 243,000 barrel/day decline in refining capacity as some of the plants that closed down or converted production last year started making their way into the official numbers. The total decline from this time last year is 831,000 barrels/day, or just under 4.4%, with more declines expected in the months to come, marking the biggest declines in 40 years for U.S. refining capacity.
Ethanol prices continue to reach multi-year highs this week, benefitting from both the rally in gasoline prices and in corn, which trading north of $6/bushel overnight for the first time since 2013.
Today’s interesting read: Why a century-old technology is making a big comeback to improve power storage. For Texans wondering what might come next with the state’s energy grid, just think of what could be done with the thousands of man-made “lakes” scattered across the state.
Speaking of century old ideas: Read the WSJ’s take on the new Presidential tax plan that will remove incentives for oil and gas exploration that date back 100 years, and why one study suggests it won’t have a major impact on output.
A shortage of truck drivers that had been impacting many industries for years has grown to crisis levels in some areas as the economy picks back up. Yesterday, industry groups sent a letter to the House & Senate transportation committees urging them to act to help alleviate this shortage, with a first step of allowing drivers younger than 21 to operate vehicles across state lines.
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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
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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.
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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.