Energy Futures Are Sinking Lower So Far In This Week’s First Full Trading Session
Energy futures are sinking lower so far in this week’s first full trading session. The gasoline contract is leading the complex lower, shaving off 5 cents per gallon for a 2% loss to start the day. Heating and crude oil prices are following suit, trading 3 cents per gallon and $1.25 per barrel lower so far this morning.
The market excitement of an imminent debt deal reached by the White House and Congress seen in Monday’s trading has given way this morning. The agreement to suspend the US debt limit for the next two years agreed upon by President Biden and Speaker McCarthy originally had prices drifting higher, until uncertainties surrounding yet another rate hike by the Fed in June threw a wet blanket on bullish sentiment.
While not exactly taking credit for this morning’s selling action, the rise in tension between OPEC and its ‘+’ is certainly being considered by futures traders. Despite sundry sanctions, Moscow continues to peddle cheap crude, undermining Saudi Arabia’s/OPEC’s designs on “stabilizing” global oil prices. Last week, the Kingdom’s energy ministers issued a warning to those short selling oil futures, claiming that further production cuts are being considered.
Money manager’s net length in WTI futures continued to drop last week, with yet another refreshed round of bearish bets on the American crude oil benchmark. Speculation on European crude oil bounced in the bullish direction however, with an increase of more than 16,000 long positions. Covering shorts seems to be the stance taken on RBOB last week with only 705 new short positions while 10,607 bets were placed on higher prices.
Open interest in the NYMEX HO contracts continued to rise last week, while managers continued to shift to a hands-off approach on WTI futures following the aforementioned warning from Saudi Arabia on what will happen to short sellers.
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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.