Energy Futures Back On The Move
Energy futures are back on the move higher to start Friday’s session, wiping out most of their reversal Thursday losses in overnight trading. After leading the way higher for most of the year, RBOB futures are suddenly the weakest link in the energy chain, sparking calls for a seasonal top in gasoline prices.
Positive Chinese trade data is getting credit for the early move higher in stocks, along with a mega-deal in the oil patch, and the correlation between US equities and oil prices remains strong as the two asset classes trade in lock-step.
Was that it? Thursday’s reversal and today’s early lagging are sending warning signs that the spring gasoline rally may finally be coming to an end. Refiners are returning from planned and unplanned maintenance, and reports are surfacing that gasoline shipments from Asia are on the way to help heal the tight supply situation along the West Coast. While the momentum may have been lost this week, we’ll still need to see RBOB futures drop back below the $2 mark before the upward trend is broken.
Kind of a big deal: Chevron is buying Anadarko Petroleum for $33 billion as “big oil” once again starts flexing its muscle again, a sign that the recovery for upstream producers has reached the next level. Contrarians will suggest this type of a deal may be a sign of a pending market top, as the enthusiasm required for this large of a transaction can only happen when optimism is peaking.
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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.