Energy Complex Finished Mixed Yesterday
The energy complex finished mixed yesterday after a lackluster inventory report from the DOE. Crude oil stocks drew down just under 3 million barrels last week, about half a million barrels less than the API’s estimate. Diesel stocks rose over 2.5 million barrels and gasoline levels bumped by +300k barrels. Prices seemed to react the opposite as expected given the headline values with Crude oil losing about 50 cents on the day, RBOB and HO adding $.0127 and $.0030 per gallon respectively.
The Tanker Saga™ continues: after British forces in Gibraltar released an Iranian tanker earlier last week, reports had the transport headed to Syria via Greece, much to Washington’s chagrin. Military action seems to be halted as of now as Greece reports it will not help the tanker reach its intended destination, and ultimately assist the Iran Revolutionary Guard, easing tensions in the area.
Atlantic cyclone Chantal was downgraded to a tropical depression overnight and does not pose any threat of landfall at this time. While meteorologists only anticipate rough seas resulting from the latest named storm, attention now shifts to the Atlantic basin as a whole, ripe with warm water ready for tropical development, as we head into peak hurricane season.
If all the headlines about the persistence of an oil supply glut aren’t convincing enough, the Department of Energy announced yesterday that it will be selling 10 million barrels of crude oil out of the Strategic Petroleum Reserve by the end of August. While the liquidation is part of a mandatory sales program, set to sell 260 million barrels through 2027, the news seems to fall in line with multiple recent reports suggesting the world’s got too much oil going into 2020. It will be interesting to see how energy economics react, given its history of correction and even over-correction, as crude oil bulls (read OPEC), continue their push for higher prices. While that seems like a hopeless cause for the cartel, climate activists might lend an inadvertent hand in their cause.
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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.