Energy Assets Attacked Again
Energy prices are ticking higher again to start the week, after taking a break in Friday’s session. Prices are holding just below the nine month highs set last Thursday, with a trio of fundamental, technical and sentimental factors all suggesting we may see another breakout today.
U.S. equity markets are moving higher this morning in what appears to be at least somewhat driven by optimism over the initial rollout of the first FDA approved COVID vaccine over the weekend. Of course, anytime the market rallies these days, stimulus package hopes also are given credit, even though there’s no clear signs of progress at the moment.
An oil tanker was apparently attacked off the coast of Saudi Arabia early this morning. That’s the fourth time energy assets in the region have been targeted, and this has the potential to be by far the most meaningful of those attacks as it temporarily shut operations in the country’s busiest port, and reminds the market that we won’t always be able to only worry about an overabundance of supply as we’ve done for most of this year.
Baker Hughes reported 12 more oil rigs put to work last week, five in the Permian Basin, three in the Eagle Ford, one in the D.J. and the rest scattered in smaller basins. While the rig count has increased in 11 of the past 12 weeks, and the nine month highs for oil prices are likely to continue this trend of modest expansion, it’s worth noting that the total U.S. rig count is still below the lowest level set in the previous price crash five years ago.
Money managers continue to add to their bets on higher energy prices, with Brent, RBOB, ULSD and Gasoil all seeing weekly increases in large speculative net length, although WTI length dropped slightly after five straight weeks of gains. A Bloomberg article suggests this trend could continue as the oil trade has become a popular way to bet on COVID recovery, which could draw in the bandwagon jumpers who missed out on a 40% increase since November 1, and keep pushing prices higher.
Today’s interesting read: The independent traders who made big money when WTI went negative in April, and how they’re now fighting to prove they did nothing wrong, and hold onto those gains.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline 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.