Energy Complex Bouncing For Second Day
The energy complex is bouncing for a second day so far this morning. Gas and diesel both posted 2+ cent gains yesterday and seem content to do the same today. As admirable as the rally seems, both contracts have almost a dime to go if they want to reverse this week’s losses.
Production concerns arising out of the majority of shale basins helped fuel the buying pressure seen over the past couple days. While the possible shortage of future crude supplies might seem like a pressing issue worthy of fear-based buying, the fact that oil production has set several new all-time highs in 2019 might keep the bulls at bay.
Despite the 2-day bounce in petroleum futures, lackluster demand growth concerns, posited first by the EIA (Energy Information Administration) then by the IEA (International Energy Agency), still overshadow prices going forward. Regardless of momentum, or reversal thereof, commodities tend to lose their value if no one wants to buy them.
Refined product charts look to be on the precipice: both RBOB and HO prompt month futures are staring down their 200-week moving averages, one of the last technical bastions keeping both contracts from seeing further downward action. $1.65 seems to be the threshold to beat for RBOB prices with $1.30 as the prize if broken. HO has a similar story if not muted with $1.72 as the next support level to break, a price not seen since December of last year, which could possibly lead to the mid $1.60s.
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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.
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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.