Energy Complex Still Faces Selling Pressure

Market TalkTuesday, Mar 16 2021
Pivotal Week For Price Action

The energy complex is facing selling pressure for a second straight day after it appears the RBOB rally finally ran out of steam Sunday night. The selloff is happening despite the S&P 500 reaching fresh record highs, as the correlation between daily price movements in the equity index and energy futures has dropped to its lowest level in a year this week.

RBOB futures are now eight cents below the three year high set in the overnight session, but the gasoline contract is lagging the others in the sell-off so far this morning. As the chart below shows, even with the big pullback this week, the bullish trend lines are still intact for now so it’s too soon to call an end to the rally. 

A pattern is emerging in the refinery restart races, each day brings stories of a few new units brought online, and one or two reports of other units that will need more time to fully recover from the damage done in February’s cold snap. The diesel basis chart below is a microcosm of that impact, with the market not nearly as tight as it was two weeks ago, but still needing to do a lot of work to get back to normal levels. 

Money managers that had shorted energy contracts were getting squeezed out last week, which pushed the net length higher for WTI, HO, RBOB and Gasoil contracts. Only Brent saw a reduction in net length (bets on higher prices) on the week. Refined products also saw some new length added, suggesting that large speculators are still will to bet that the rally can continue, even after prices have already doubled in the past 4.5 months. Open interest in crude oil contracts is increasing, reaching its highest levels since the chaos of last April when WTI went negative, in what’s likely a sign of the expectations for economic recovery, and/or for inflation, in the months ahead.

The Dallas FED’s mobility index shows that movement across the U.S. is at its highest levels since the lockdowns began a year ago. Texas shows to be leading that move higher as the state reopens, just a month after movement dropped to levels worse than the depths of the quarantine lockdowns due to the Polar Plunge. With warmer weather ahead and both drilling and refining activity picking up, we should see this strengthening trend continue in the coming weeks.

Click here to download a PDF of today's TACenergy Market Talk.

TACenergy MarketTalk 031621

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action