Energy Futures Has Pulled Back From The Highs Seen During Yesterday’s Abbreviated Trading Session
Energy futures has pulled back from the highs seen during yesterday’s abbreviated trading session. The prompt month diesel contract has come down almost 15 cents since yesterday while WTI, America’s crude oil benchmark, made a run at the $90 level before pulling back and is now trading around $87 per barrel. New York gasoline is now trading just on the green side of flat, exchanging hands just half a cent above Friday’s settlement.
OPEC+ (aka OPEC & Friends/OPEC+Russia) surprised the energy market yesterday, announcing a small production cut for October, and spurred bullish price action Monday. Futures markets have cooled so far this morning after digesting that this “new” production level is just a reversion back to August’s supply expectation. The cartel bumped September’s production amount after meeting with the US President but has since clarified that increased supply was intended to be for one month only.
While not necessarily adding bearish sentiment, Russia’s declaration that it will respond to any imposed price cap on its oil exports by shipping to Asia will certainly be considered by anyone wanting to get long on oil. This announcement comes after the Group of Seven (G7) endorsed imposing a maximum price Russia could sell its oil for in order to trim the Kremlin’s hardy energy revenue stream. While requiring Russian’s to sell their product at discounts to current market value may seem like a great plan among the G7 countries, the idea’s practicality will hinge on compliance among several Asian countries, namely India and China.
The Atlantic hurricane season is continuing to ramp up so far this month. As hurricane Danielle continues to make it’s way Northeast in the top half of the Atlantic, Tropical storm Earl organized over the long weekend and will likely follow roughly the same path as it’s predecessor, steering clear of the US mainland and moving north, out to sea. Industry operators will still be keeping an eye on the couple of systems coming West off the coast of Africa as the closest of the pair has a 60% chance to exhibit cyclonic development over the next week.
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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.
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.