Energy Futures Try To Find A Bid
Energy futures are trying to find a bid this morning, in spite of headwinds from weaker equity markets, and a dire outlook for fuel demand. It’s the last trading day for April RBOB and ULSD (HO) futures, so watch the May contracts for price direction at the racks, while we could see some fireworks in the expiring contracts as we wind down one of the most volatile months on record.
With the U.S. more or less planning to stay on lockdown for all of April, and EPA restrictions being delayed or waived, it’s difficult to see a strong fundamental argument for prices to sustain any sort of meaningful rally in the next few weeks. The WSJ noted yesterday that cheap gasoline abounds at retail stations across the country, unfortunately - and largely because - no one is around to buy it.
Monday’s action could be seen as pivotal for gasoline prices trying to carve out a floor as early eight cent losses turned into a penny gain by the end of the day. Then again, that nine cent swing was less than half of the range that we saw in the previous three Monday trading sessions, so it could just be lost in the noise of volatility if prices don’t continue that rally this week.
WTI also dodged another technical bullet Monday, managing to hold above $20 by day’s end, despite trading below that level several times throughout the day. Here too, we’ll need to see prices rally above their downward sloping trend line this week to avoid another wave of technical selling.
The Dallas FED’s Texas manufacturing survey for March illustrates just how quickly the COVID-effect hit producers in the state.
The crack-spread charts below show the dire economic outlook for refiners over the next 6 - 12 months based on current forward curves, and help explain why it’s now more news worthy if a refinery isn’t cutting rates, as plants around the world are curbing production at unprecedented rates.
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.