Economic Reports Seesaw Energy Markets
Whiplash is the theme of July trading so far with energy prices back on their heels this morning, taking back a portion of Wednesday’s strong gains following a “good news is bad news” jobs report as the search for direction continues.
After a quiet overnight session Treasury yield jumped while energy and equity markets dipped following the ADP payroll report that estimated 4970,000 jobs were added in June, more than double the consensus guesses. That strong number suggests tomorrow’s government payroll report might beat expectations as well and would all buy guarantee another rate hike at the July FOMC meeting.
The API showed increases in refined product inventories last week with gasoline stocks up 1.6 million barrels, while diesel increased by 604,000 barrels. Crude stocks dropped by 4.4 million barrels despite another 1.4 million barrels being released from the SPR as the DOE prepares to end its sales and begin its purchase program over the next few months. The DOE’s weekly status report is due out at 10am central today. We should see some strong demand figures in the lead-up to the big holiday weekend.
Iran continues to try an alternate approach to prop up oil prices as its exports increase to the highest levels in 5 years. Yesterday there were reports that Iranian ships, attempted to seize 2 more oil tankers near the strait of Hormuz but were thwarted by the US Navy. While this sounds alarming, this type of attack has become fairly common over the past few years, and seems to be doing little to influence prices, in yet another sign of the bear market for petroleum we’re living in.
In addition to the influx of Iranian exports, which are exempt from the OPEC output cut agreement, Venezuela has also seen oil exports steadily increasing since Chevron received waivers to restart operations in the country.
A year after its official commissioning, and just $8 billion over budget, the Dos Bocas refinery in Tabasco Mexico has started to operate and is expected to operate at roughly 1/4 of its original nameplate capacity of 340mb/day in the coming months. IF the startup goes to plan that facility will take some market share from USGC refiners that have been supplying products to much of the region for years, due in large part to Mexico’s inability to operate its refineries anywhere near capacity.
Click here to download a PDF of today's TACenergy Market Talk.
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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.