Energy Complex Took A Breather
The energy complex took a breather yesterday with RBOB shedding almost 2.5 cents off of monthly highs and HO dropping almost 2 cents. WTI stayed positive, but only just, amid rumors of Iraq supporting intended OPEC production cuts. The cartel and friends are schedule to meet next week to discuss their plan moving forward.
Both American and European crude oil benchmarks has continued their climb this morning, both showing modest gains, despite Saudi Arabia’s announcement earlier this week that it is “ready for… disruption” regarding the recent tensions centered around the Strait of Hormuz. The press release is somewhat confounding coming from the Kingdom, whose GDP comes chiefly from its oil production and likewise favors higher prices, as most interpret the message as a means to stabilize the market. Traders will be interested to see if this is borne of genuine intention or just the latest move in a geopolitical chess match.
PES has confirmed Wednesday that it intends to shut down its refinery and put it up for sale amid the massive explosions that rocked Philadelphia last week. Aside from physical prices popping in the New York Harbor vs futures this morning, offsetting the difference between the expiring July contract and the newly-prompt August contract, price reaction to the 335,000 barrel per day production deficit have been limited to NYMEX prices and Colonial shipping premiums. Refined product suppliers are paying .0075 per gallon to ship gasoline up from Houston to New York, hoping to avoid or correct the expected strained regional economics.
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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.