Energy Futures Are Drifting Higher To Start This Week’s Trading With The HO Contract Leading The Way Higher
Energy futures are drifting higher to start this week’s trading with the HO contract leading the way higher, tacking on 3 cents per gallon (1.2%) so far this morning. Gasoline and crude oil futures are trading higher in sympathy, each seeing a ~.6% bump.
The Wagner Group, the Russian paramilitary organization that has acted as the Kremlin’s spearhead in many fronts of the Ukrainian invasion, staged a casual coup over the weekend. The mercenary group took over the southern military headquarters in Rostov-on-Don and was about 120 miles from the Moscow before its leader, Yevgeny Prigozhin, cut a deal that saw him to Belarus and his troops back to Ukraine. While the mutiny was staged and peaceably quelled within a day, the overtones of chaos and instability are taking credit for today’s bullish sentiment in energy markets.
Tropical Storm Cindy disorganized over the weekend and is now referred to merely as Disturbance 1 by the National Hurricane Center. The system looked as if it might cause some headaches for marine traffic along the Eastern seaboard late last week, but updated forecasts have it sticking out to sea with a 30% chance of reorganizing over the next week.
Last week’s volatile price action saw an across-the-board exit in positions held by energy speculators. Open interest in the ‘big three’ American petroleum benchmarks held by money managers declined last week while new positions in Europe’s Brent and Gasoil contracts ticked up by about 2%.
Baker Hughes reported the shuttering of 6 crude production plants last week, dropping the total operation oil rigs in the US down to 602.
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View AllThe 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.