Energy Futures Drifting Higher This Morning
Energy futures are drifting higher this morning save the New York distillate contract, sinking modestly lower to start today’s trading session. Oil futures look to be making a comeback run at the $90 level while gasoline prices eye breaking above $3.
The Department of Energy’s weekly inventory status report released yesterday spurred across-the-board buying in Wednesday’s trading session. A sizeable 7 million barrel drawdown in crude oil inventories along with a ~4.5 million barrel drop in gasoline stockpiles lead the headlines and stoked bullish sentiment in energy traders. However, the ‘number of the day’ was American crude oil exports which was up 137% from last week at nearly 3 million barrels per day, an all-time high. Likewise, supertanker freight rates reached two-year highs as interest in shipping crude oil returns to pre-pandemic levels.
Today is the 64th consecutive day of falling retail gas prices and while some might say the worst is over, regional inventory levels paint a dimmer picture. Total US gasoline inventory remains at record seasonal lows as it has since early April. While gasoline inventory is around the 5-year average level for the Gulf Coast region, this is the second week in a row we’ve seen a sharp decline in the nation’s refining center as refiners rush to resupply a product-starved East Coast.
What could really throw a wrench into the energy market’s recovery is a wide-scale supply disruption. Meteorologists are tracking a system that’s currently crossing the Yucatan peninsula and are projecting it to run up Mexico’s east coast over the next week. The National Hurricane Center gives the storm a 30% chance of developing over the next five days.
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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
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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.
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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.