Energy Markets Treading Water To Start Week
The energy markets are treading water to start the week after the biggest daily sell-off in more than 2 months broke a streak of weekly gains and threatens to break the bullish trend-lines that have pushed prices higher since bottoming in December.
Friday’s heavy selling was largely blamed on a statement from the US President that he’d reached out to OPEC about keeping oil prices low. Even when that statement was refuted by OPEC, the market did not reverse course suggesting there was a wave of liquidation at hand after a 7-week-long rally in WTI and similar moves in the rest of the complex.
Wondering why Trump Tweets seem to roil the oil markets? Read this piece by Michael Lynch.
Baker Hughes reported a decline of 20 oil rigs last week, the largest weekly drop since January, and the 2nd largest of the past 3 years. The market seemed to shrug off that news Friday as the report did little to stem the tide of heavy selling, another indicator that this market had been over-cooked.
Money managers continued their steady increase of net-long holdings in WTI and Brent last week, while refined products both saw a slight decrease. This week’s COT reports will be closely watched to see how those funds weathered Friday’s sell-off. Whether or not those funds head for the exits now may determine if prices bounce on the trend support and continue higher, or if they’ll break, and spark another May sell-off.
The EIA this morning noted how exports of various petroleum products from the US Gulf Coast have been aided by an expansion of the Panama Canal.
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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.