Energy Futures Surging Higher To Start Week

Market TalkMonday, Apr 22 2019
Bulls Have Taken Back Control Of Energy Markets

Energy futures are surging higher to start the week as the US announced it would let waivers for Iranian crude buyers expire. There are also reports that the US may have taken an unusual stance of signaling support for the Libyan commander trying to overthrow the UN-backed government. Add uncertainty from those 2 OPEC nations to the certainty of Venezuela’s sad situation, and it’s easy to see why oil prices are on the rise today.

If the early gains today can hold, this would mark a technical breakout for all contracts, leaving the door open for WTI to make a run at $70 and Brent to have a chance at $80, which would mean another 15-25 cents of upside for refined products. If for some reason prices can’t hang on however, this early spike will look like a bull trap at the end of a strong spring rally.

Money managers continue to jump on the energy bandwagon, with net-length held by speculators increasing in all of the big 4 petroleum contracts last week, while WTI saw an 8th consecutive week of gains. While the net length in oil has been steadily increasing of late, the total exposure is still close to the 5-year average range for this time of year, suggesting there’s more dry powder available should those funds choose to continue their buying spree. RBOB gasoline meanwhile is approaching a record-high net length, which can be a contrary indicator, since so many speculators have already bet on higher prices, the market can run out of new buyers.

Baker Hughes reported a decline of 8 oil rigs in the US last week, spread out across Texas, Oklahoma, Louisiana and Colorado.

The EIA this morning published a note on the changing dynamics of US energy trade with Mexico.

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.