Energy Futures Selling Off For 2nd Straight Day
Energy futures are selling off for a 2nd straight day, pulling oil prices back from 2-month highs reached Friday and now setting up a test of the low end of November’s trading range. The choppy, range-bound action suggests traders are taking a wait and see approach with the US China trade discussions ongoing and the OPEC meeting less than 2 weeks away.
Trade pessimism is taking some of the early blame for the 2nd day of selling, as are reports that Russia is not willing to cut production further to assist OPEC with stabilizing global prices.
It’s easy to forget that the Atlantic hurricane season runs through November following a quiet couple of weeks, but the NHC is now giving an 80% chance of development to a system over the next 2 days. Early forecasts keep this system out over open water, but we’ll need to watch this week to make sure there isn’t a shift to the west.
The EIA published its annual report on US carbon emissions last week. The report showed that after 3 straight years of declines, and a 10 year average rate of -1.7%, emissions from the energy industry increased in 2018, largely due to a colder winter and warmer summer increasing demands on home heating and cooling. That report will keep the pressure up on agencies like the IEA, which has come under fire for not doing enough to stem the tide of climate change.
Speaking of pressure, 23 US states have joined a lawsuit against the EPA to try and maintain the right to set emission standards for vehicles separately from Federal requirements. While this lawsuit may have little impact on supply or demand near term, it does make it clear that climate-related issues will stay in the forefront of conversation in the coming year.
Click here to download a PDF of today's TACenergy Market Talk.
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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.