Energy Markets Trying To Move Higher
Energy markets are trying to move higher for a 2nd day, but still seem to be struggling with setting a definitive price floor as their overnight gains have been eroding this morning. A large decline in US crude oil inventories is taking credit for the move higher overnight while equity markets continue on their trade-induced rollercoaster ride.
The API seemed to surprise many Tuesday afternoon when it was said to report a 10 million barrel draw in US oil inventories last week. Then again, the API showed a 5 million barrel build a week ago while the EIA showed a 7 million barrel decrease, so this week’s move seems explainable as the voluntary industry report catching up with the mandatory government report, and perhaps not an indicator of what we might see from the DOE report this morning. The API also showed a decline of 2.4 million barrels of gasoline last week while distillates increased by 712 thousand barrels.
The EIA offered more insight to last week’s data point showing the US exported more oil and petroleum products than it imported for the first time in around 75 years in a new report this morning. Given the huge swings in the weekly flow of exports and imports to reach that milestone, don’t expect a repeat performance in today’s status report. If China returns as a buyer of US Crude however, that may finally tip the scales to make the US a net exporter on a more regular basis.
Speaking of which, volatility in both equity and energy markets remains high (as displayed by the VIX and OVX chart below) as uncertainty over Trade continues to roil markets depending on the latest headline. Tuesday we saw large early gains in stocks wiped out following reports that a Canadian was arrested in China, in an apparent retaliation for the Chinese executive arrested in Canada last week. Stocks are pointed higher ahead of the open this morning as the US Trader-in-Chief said he would intervene in the latter case if it meant getting a trade deal done with China.
OPEC released its monthly oil market report for December this morning, showing that the cartel’s production held flat last month, as an increase in Saudi Arabian output offset the large declines from Iran. Looking ahead to 2019, the ongoing trend of supply beating expectations while demand growth missing the estimates from earlier in the year seems to be a theme throughout the report, and makes it easier to see how the cartel was able to reach its agreement last week.
Other notable items from the OPEC report:
“Non-OPEC oil supply growth in 2018 is estimated at 2.50 mb/d, an upward revision of 0.19 mb/d from the previous month’s assessment. The US, Canada, Russia and Kazakhstan are expected to be the main growth drivers, while Mexico and Norway are anticipated to show the largest declines…”
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.