Energy Markets Oscillate Amid Pending Regulatory Updates, Inventory Reports
Whiplash is the theme of the week so far as a big Monday sell-off has given way to a strong Tuesday rally. Tomorrow is set up for more fireworks with the FOMC announcement coming on top of a pair of regulatory updates for renewable fuel programs and the weekly inventory reports.
Take your pick: A report from the bank affectionately known as the Vampire Squid seemed to contribute to Monday’s risk off sentiment, citing an increase in Russian supply for lowering their oil price outlook for the year. This morning, a Reuters report that Russian exports dropped sharply in May seems to be helping the complex take back most of yesterday’s losses.
The dramatic fall in motor fuel prices over the past year is helping to keep a lid on inflation figures. It was this same week a year ago that gasoline futures reached a record high of $4.32, while ULSD futures touched $4.64. The official CPI for May came in at 4% annual inflation, but would have been much higher without official declines of 19-37 % for fuel. The official inflation figures excluding food and energy were 5.3 percent for May, but food prices were up 6.7% on the year, in another example of how the rapidly declining fuel prices are helping offset increases elsewhere. The CPI reading appeared to be right in line with many estimates for the month, and the market reaction in both energy and equities was muted.
Rack prices across West Texas and the Southwestern US have returned to more “normal” levels after 2+ months of huge premiums vs spot markets following overlapping maintenance at multiple refineries in the region. Over the weekend Along Big Spring, P66 Borger and Marathon El Paso refineries all reported upsets to the TCEQ, which could lead to product tightening up in the region once again, although it’s unlikely we see another spike like we did this spring unless there is more extended downtime.
While the tropics remain quiet in the early weeks of the Hurricane season, severe weather is picking up across the southern US, and inland refineries like Valero Ardmore OK, Delek Tyler TX, Calumet Shreveport LA, Delek El Dorado AR, and Valero Memphis TN are all in the path of severe thunderstorms and tornado warnings this week.
California Carbon Allowances rallied to a 10-month high Monday ahead of a workshop tomorrow to discuss potential changes to the state’s Cap & Trade program. RIN values meanwhile have recovered most of the losses they saw last week as traders anxiously away the EPA’s court-ordered deadline to announce RVO levels for 2023-2025 which also happens to be tomorrow.
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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.