Energy Futures Trading Higher
After another soft day of trading Tuesday, Rumors that OPEC may be discussing a production cut ahead of their meeting this weekend has energy futures trading higher this morning, erasing overnight losses that were sparked by a large build in US crude oil inventories.
The OPEC discussions have already been called nothing more than an attempt at “verbal intervention” to stall the price collapse. Given the challenges the cartel has faced in reaching an agreement over the past few years, may be nothing more than a good excuse to see some profit taking after prices reached multi-month lows.
The API was said to show US oil inventories increased more than 7.8 million barrels last week, which sent most prices lower overnight, while refined products saw draws of 3.6 million barrels for diesel and 1.2 million barrels for gasoline.
The EIA released its monthly Short Term Energy Outlook Tuesday, and reduced its price forecast for petroleum products for the first time in several months as global supplies look to be building more than they expected in previous reports. The agency’s weekly status report is due out at its regular time of 9:30 central today.
A look at the forward curves: WTI and Brent show the sell-off of the past month has focused on the front end of the curve, as the global supply outlook shifted from shortage to excess, and the first few months moved from backwardation to contango as a result.
RBOB gasoline’s forward curve was fairly steady with ample supplies and soft demand a theme throughout, which also helps to explain why gasoline prices are 52 cents cheaper than Diesel. ULSD meanwhile is seeing a bit of a guessing game as traders try to determine when the IMO bunker fuel spec change due 2020 may create a shortage next year.
Colorado voters rejected a proposed law that would have sharply reduced oil and natural gas drilling in the state.
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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.