Energy Futures Broke Bottom End Of Recent Trading Range
Energy futures broke the bottom end of their recent trading range Tuesday, setting off a wave of heavy selling that took 7% off of WTI prices for the day, and knocked products down by 4%. The decline puts most futures contracts at their lowest levels in 12-15 months, and most wholesale gasoline prices at their lowest levels in 2 years.
Not everyone is so fortunate however as California gasoline prices continue to surge, with basis values increasing more than 50 cents in the past week thanks to a handful of local refinery issues, and a pipeline shutdown in NM increasing demand for supply from the West.
As the weekly chart for WTI below shows, the breakout of the sideways pattern to the downside for futures looks like a reverse flag pattern. This type of chart pattern is known as a continuation pattern, meaning the trend will continue in the direction it started (compared to a reversal pattern that would change course) and suggests that we could see much lower prices in the new year, with a possibility of WTI below $30.
The API was said to report a 3.4 million barrel build in crude oil inventories last week, along with an increase of 1.7 million barrels of gasoline and a draw of 3.4 million barrels of distillates. The DOE’s weekly report is due out at its usual time this morning, and then will be delayed until Friday the next two weeks due to the Christmas and New Year’s holidays.
Canada’s government announced a $1.6 billion financial aid package to prop up the struggling energy industry in Alberta, which continues to be hampered by a lack of takeaway capacity for its growing oil production. Western Canadian Select prices are more than double what they were in November when the government announced forced production cuts, but are still trading below $30 today.
Speaking of oil export bottlenecks, there’s a new fight underway for control of the Houston ship channel between energy exporters, and container ship operators. With the US in the middle of a “race to the coast” to find new options for exporting its surging energy production, this may make other port projects more appealing.
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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.
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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.