Energy Futures Weaken
After starting yesterday on a strong positive note, energy futures weakened into Tuesday’s settlement on news that the Trump administration has asked for John Bolton’s resignation, a move that is expected to be beneficial for tensions in the Middle East. The former National Security Advisor had a reputation of taking a hard stance on Iran and its oil exports. WTI futures ended the day down about 50 cents per barrel while prompt month gas and diesel contracts held on in positive territory, each showing about half a cent in gains.
Buying quickly resumed later that afternoon after the American Petroleum Institute published its weekly inventory report, showing a 7.2 million barrel draw in US crude oil inventories, bringing the net change in stockpile levels for 2019 around -26 million barrels, according to the Institute. Prices are up slightly this morning, somewhat confident the drawdown in stocks is accurate, but traders will likely wait until confirmation of the draw’s magnitude by the DOE’s report, due out at 9:30AM CDT this morning.
The EIA published their monthly Short Term Energy Outlook yesterday with a somewhat neutral forecast of things to come in 2019 and 2020. While fuel consumption growth is projected to weaken for the rest of 2019, they anticipate it will bounce back in 2020 due to global economic expansion. The Administration also anticipates US oil production growth to slow between this year and next, citing relatively flat oil prices as the main driver. It will be interesting to see if renewed efforts by OPEC to avoid a further global surplus of oil will have a tangible effect on prices and likewise US production levels.
Tropical Disturbance 1 which is currently just Southeast of the Bahamas now has a 40-60% chance of cyclonic development over the next 5 days as it moves into the Gulf of Mexico. While prompt attention will likely be paid to the closest threat to the American mainland, two more areas to watch are creeping West across the Atlantic as well, making for a very busy September.
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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.