Energy Complex Moving Higher
The energy complex is moving higher today after a couple of bearish DOE figures failed to provoke across-the-board buying yesterday. Gasoline futures sighed a 40 point loss on Thursday while a little more came out of the diesel prompt month contract at about -2 ¼ cents.
Diesel stocks continued lower and while that is expected this time of year, the days of forward cover chart, a look at our supplies + production vs demand, has hit a 5-year seasonal low and has reached levels not seen since 2008 and one time in early 2014. It could be that traders are banking on the restarts in Midwest refineries to save the day, last week saw a 7% production boost in PADD 2 throughput rates as the regions refineries are brought back from fall turnaround.
Ironically crude oil was the only of the major three contracts to settle with gains yesterday, in the face of a 10.3 million barrel build in inventories, the biggest build since February 2017 and 7th biggest in the history of the report. Apparently rumors and hopes of something actually coming from “supply cut talks” from OPEC was enough to keep the American benchmark in the green. The oil cartel will meet on December 6th to discuss production levels after which we will have not even close to a better idea of what to expect in 2019.
Prices are on the move this morning, RBOB and HO futures are adding around 3 cents so far today. While overtaking yesterday’s highs in pre-market trading seems bullish, the refined product contract still have a way to go to buck the bearish trend that’s been plaguing them since October. Peg $1.65 for gas and $2.15 for diesel as pivot points where the trend might spell higher prices going forward. WTI’s got a little further to go, will likely oscillate in the $50-$60 for the foreseeable future.
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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.