Energy Futures Tumbling Again to Speculator's Chagrin
Diesel futures are leading the energy complex lower for a 2nd straight day and have dropped 24 cents from Friday’s highs. In total, ULSD futures are down 39 cents from the highs set last Tuesday, and the bulls are now in rally-or-else territory as the 6-week-old trend line is suddenly under pressure. The moves for RBOB have been less dramatic, with gasoline prices “only” dropping 11 cents since Friday morning’s highs, which leaves more room to fall before gasoline threatens its weekly trend-lines.
The big selloff looks like it will have several hedge funds wishing for a do-over after adding to their bets on higher fuel prices last week. The big 5 NYMEX and ICE contracts all saw healthy increases in long positions held by money managers in the latest report from the CFTC, while Brent, WTI and ULSD contracts also saw heavy short covering, just before those bets on lower prices would have paid off.
Open interest in crude and refined product contracts saw another week of healthy increases, making it appear that the recent reduction in volatility has more traders getting comfortable returning to the petroleum space after many bailed out during the chaotic trading in 2022.
The timing of this latest pullback in diesel prices is particularly curious given that we’re now less than a week away from the highly anticipated embargos on Russian distillates taking effect. European imports of Russian diesel have surged in recent weeks to get supplies in before the restrictions take place, which may be causing some short-term excess supply, although longer term there are still major concerns about distillate supplies globally.
There’s another winter storm warning issued to oil and gas pipeline operators in Texas this week, but the freezing temperatures aren’t expected to extend south into the refinery zone along the Gulf Coast, so we should not see a widespread impact from this system like we did in December.
A study published by the Environmental Integrity Project is getting a fair amount of press as it highlights the water pollution caused by US oil refineries and the failure of the EPA to enforce the Clean Water Act. The study could end up being a catalyst that forces the EPA to update its 40-year-old standards for wastewater disposal or may be ignored if higher fuel prices become a bigger news story again this year.
Baker Hughes reported a drop of 4 oil rigs drilling in the US last week, offset for a 2nd straight week by an increase in natural gas drilling rigs. Notable this week was that the decline in oil drilling was almost all in waters off the Louisiana coast, while the Permian basin saw a net increase of 3 rigs.
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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.