Energy Futures Are Seeing A Strong Rally To Start Friday’s Trading With Big Rallies In Risk Assets Around The Globe
Energy futures are seeing a strong rally to start Friday’s trading with big rallies in risk assets around the globe and some technical buying after the heavy selling earlier in the week both seeming to contribute to the big bounce. Chinese demand guesses continue to be a talking point as well, although it’s becoming even less clear whether or not the world’s largest oil importer is actually relaxing or not.
Hope springs eternal: Just a week after the FED chair said it was “very premature” to talk about when central bank would pivot from its tightening monetary policy, US stocks had their best daily rally in 2.5 years betting the FED would pivot because inflation was only .4% for the month of October, and 7.7% for the trailing 12 months. That euphoria continued overnight in international markets and seems to have encouraged some energy traders to jump on the “risk on” bandwagon this morning, even though the correlation.
While the optimists are clearly in control at the moment, don’t be surprised if more demand fears creep back in soon after reports that Chinese refiners have taken an unusual step of asking Saudi Arabia to reduce their oil volumes in December as consumption has slowed. Those reports seem to rain on the parade of the COVID relaxation rumor crowd, who were acting an awful lot like the pivot prophets are now until reality set in.
Big drops in diesel outright prices, time and crack spreads had pushed several contracts to key chart support levels that could have sparked another wave of selling, but so far technical support layers have held up and the bulls have passed their first big test. We’ll have to see if that proves true for the record-setting basis values in NYH that dropped almost 20 cents Thursday after reaching a record premium of $1.25/gallon earlier in the week.
Gulf Coast diesel is now trading more than 27 cents below December ULSD futures, and is still trading nearly $1.30 below prompt values in New York, which has pushed values for shipping diesel along colonial to a record high of 15 cents/gallon. That rapid increase suggests PADD 3 refiners may have temporarily run out of better alternatives than braving the backwardation along the East Coast to get rid of their excess distillates.
Terminals across Florida are reopening as power has been restored following Hurricane Nicole’s landfall. There are no reports yet of major damage to any port or tank infrastructure.
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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.
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.