Crude Oil Futures Are Leading The Energy Complex Higher This Morning After The Sunday’s OPEC+ Meeting
Crude oil futures are leading the energy complex higher this morning after the Sunday’s OPEC+ meeting saw Saudi Arabia pledging to cut its oil production by 1 million barrels per day in July. For now, the other member nations will be keeping their output at previously agreed upon levels for the rest of 2023, but the cartel as a whole plan to cut its baseline output by 1.4 million barrels per day in 2024. Keeping a lid on the rally: there’s a big question mark surrounding whether or not A) Kingdom sticks to its plan for next month and B) if OPEC+ will retain their 2024 sentiment for the next 6 months, especially given how fluid the global economic and political landscape can be.
Money managers might be kicking themselves this morning after bolstering their bearish bets on WTI last week by nearly 26,500 short positions. The sentiment for RBOB, HO, and Brent futures seems to be the opposite, showing the ‘smart money’ increasing their net long positions for each benchmark. It will be interesting to see, in next week’s report, how seriously speculators are taking Saudi Arabia and the rest of OPEC+ at their word to stick to further production cuts.
Baker Hughes reported decline of 15 active oil production rigs in the US last week, bringing the total to the lowest level since late April of last year. The production platform closures seem to be pretty spread out with the Eagle Ford, Haynesville, Permian, and Williston major basins showing a shutdown of 2 rigs each. Continued rig shutdowns, which is at a net decrease of 7% YOY, is being attributed to an increase in costs due to inflation and lower oil prices (which made a lot more sense before this morning).
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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.