Energy Futures At Fourth Straight Day Of Losses
Energy futures are looking at a fourth straight day of losses, but RBOB gasoline futures have just moved into the green after trading lower overnight, putting a brief hold on the selling. Most futures and cash market prices are trading near 1 month lows as demand concerns and seasonal influences both appear to be weighing on a market that has been flashing technical warning signs for some time.
A large drop in Chinese refining rates was also given some credit for the selling as it was seen as a sign of weakening demand in the world’s largest energy importer, rather than a sign of lower refined product supply with those plants cutting runs. In addition to the energy concerns, there are larger concerns that the recent spike in COVID rates is further complicating supply chains that have been a mess for months.
For much of the past decade refiners with advantaged crude oil could make healthy profits while those without (like most on the US East Coast) struggled to break even. We’re seeing a similar phenomenon today in the renewable fuel refinery race as the shortage of bio-mass feedstocks is making huge profits for those with flexible inputs while others who must run soybean oil are facing challenges. Relief could be on the way as the world’s largest soybean exporter has reduced domestic biodiesel blending requirements, which will allow more soybeans to reach the global market and be turned into food, tires, or perhaps renewable fuel.
The vicious cycle of drought is forcing water allocations across the South West, and in turn threatening electricity supplies in the region, which ends up being bullish for supplies like natural gas. This phenomenon is not unique to the US, as Brazil is facing shortages of both water and electricity, which is helping boost US fuel exports to supplement their supply.
Those exports are a lifeline to US refiners as they help both relieve a supply overhang as the demand recovery plateaus this summer, and avoids the Renewable Fuel obligation that tacks another 20 cents/gallon of cost to domestic sales. Citgo noted that higher export volumes from its refineries helped push the company to its first profitable quarter since 2019, when it lost access to Venezuelan crude.
There are 3 active storms in the Atlantic basin, but none look to be a supply threat. Fred moved onshore Monday with minimal disruption to the Florida panhandle, and terminal loading racks resuming liftings last night. Grace still appears headed for Mexico, staying well south of the oil production and refining zones along the Gulf Coast, and Henri is doing loops around Bermuda and doesn’t appear to be heading to the US.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.