Energy Futures are Starting the Week with Modest Losses
Energy futures are starting the week with modest losses, as the complex continues to slog through an extended period of sideways trading. Brent crude prices give a good example of the lethargic trading, as they’ve been stuck between $57 and $62 for 9 of the past 12 weeks, with only the brief price spike following the attack on Saudi oil production moving prices out of that sideways range.
Part of the reason for that lack of action is that money managers are unenthused with energy contracts, with net-length in both WTI and Brent reaching the lowest levels since January. Refined products are also uninspiring in terms of total outstanding positions, but also intriguing as RBOB positions are ticking up towards the high end of their seasonal range, while ULSD positions barely hold onto a positive bias, both counter to seasonal norms as driving slows down and heating demand ramps up.
Baker Hughes reported 1 more oil rig was put to work last week, marking a 2nd week of gains. While adding 3 rigs in two weeks isn’t exactly newsworthy, the two week break from declines does suggest the rig count may have found a temporary floor.
Ethanol RIN values have dropped back to around 15 cents/RIN after trading around 25 cents 2 weeks ago. The EPA’s proposal for spreading renewable volume obligations in the coming years is taking the blame for the latest drop in RIN values.
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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.
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.