Energy And Equity Markets Are Both Seeing Losses To Start The Week
Energy and equity markets are both seeing losses to start the week as fears of a global economic slowdown seem to be weighing heavily on markets around the world. Refined products are trading near multi-month lows, and threatening a technical breakdown that could see another big price slide unless buyers step in soon.
The US dollar is rallying this morning, approaching the 20-year high it set earlier in the month ahead of several central bank meetings this week, which is putting downward pressure on several commodities. According to the CME’s Fedwatch tool, traders are giving 80% odds the US FED will announce a 75 point rate increase this week, and a 20% chance of a 100 point hike. Those bets have changed dramatically over the past week, and the past month, as inflation reports came in worse than many expected, convincing some traders that the only way to stop inflation is to induce a recession.
Hurricane Fiona is expected to become a major storm later this week, after running over Puerto Rico and the Dominican Republic. The storm only appears to be targeting defunct refineries having passed near the bankrupt Limetree Bay FKA Hovensa refinery this weekend, and now taking aim at the Come by Chance facility in Newfoundland that is attempting to convert to renewables production, and already facing serious challenges in doing so.
Money managers continue to act cautiously towards energy contracts, with open interest holding near 5-7 year lows. The large speculative category of traders made small increases in crude oil net length last week, but cut their length in refined products, keeping their total holdings well below the average levels we’ve seen over the past 5 years.
Baker Hughes reported an increase of 8 oil rigs active in the US last week, snapping a 2 week decline that lowered the US total by 14. Natural gas rigs dropped by 4, wiping out last week’s gain. A WSJ article this morning highlights private drillers nearing their capacity, which helps explain some of why the rig counts seem to have plateaued recently.
The DOE’s leader met with the governors from North Eastern US states last week to discuss concerns over shortages of refined fuel and LNG supply ahead of the winter heating season. Options on the table appear to be a release of the regional gasoline and heating oil reserves, or waivers on the Jones Act. The energy secretary acknowledged “concern about the low levels of privately held refined product inventories in New England” but did not make any proposals yet on how to deal with the situation.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.