Energy Complex Likely to Open Lower
The energy complex will likely open lower this morning, continuing to retrace last week’s gains. Uncertainty surrounding potential OPEC+ (read OPEC+Russia) production cuts and anticipated inventory builds are being blamed for the lower price action today. While it seems most headlines preceding decisions from the oil cartel and its main ally seem mostly to be conjecture, we won’t have to wait long to see if cuts are in the cards since the next supply meeting is set for December 5th & 6th.
The S&P 500 hit record highs yesterday, widening the gulf between energy and equities prices that traded in tandem just a year ago. Unrelated asset classes trading independently is typically a sign of a healthy market; that may not mean much to production rigs which reached a 2 year low last week due to unviable economics.
Tropical activity is pretty quiet for now, with only one area that could potentially develop into a system out in the mid-Atlantic. While we are on the tail end of the 2019 Atlantic Hurricane season, we could still see development going into the end of the year. On this day 7 years ago Hurricane Sandy made landfall on the US mainland and went on to be the most destructive storm of the 2012 season.
WTI futures are testing support levels this morning helping keep the crude benchmark above $54.50. If broken there is little in the way to keep prices from threatening the $51 range. It’s a different story with refined products futures, facing a slew of resistance levels in between current prices and a likewise 6.5% drop.
Click here to download a PDF of today's TACenergy Market Talk.
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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.
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.