Energy Prices Are Moving Modestly Higher To Start The Week As Equities Try To Find A Bottom After Another Brutal Week Of Selling
Energy prices are moving modestly higher to start the week, as equities try to find a bottom after another brutal week of selling, and the world continues to wonder what is worse between a shortage of supply, or the shortage in demand it will eventually bring.
In the bullish column this morning, Shanghai is in the process of reopening after a multi-month lockdown, and Russia cut off natural gas flows to Finland. Unlike most of Europe, Finland has other options to replace those Russian supplies, which probably goes a long way to explaining the muted reaction to that latest move in the global energy chess match.
Money managers added new longs, and covered old shorts last week, pushing their net length to the highest levels since February. That said, the net length held by the large speculators remains well below the past several years as the big funds seem either afraid of, or prohibited by their risk management departments from, making large wagers on energy prices.
Refined product open interest ticked higher off of multi-year lows for another week as a return to more tolerable volatility seems to be encouraging some flows back into the ULSD contract. WTI meanwhile saw its OI drop to a new 4.5 year low as volatility and competing products both seem to be taking a toll on the NYMEX contract, especially given the focus on waterborne crude oil this year.
Maybe they went on Spring Break? After a month of holding near unchanged, Texas led a big jump in active drilling rigs last week, adding 8 rigs in the Permian basin, and accounting for 12 of the 13 new rigs put to work according to Baker Hughes’ weekly count. If the recent 3 week average of 9 rigs/week holds, we could see the rig count reach pre-pandemic levels by the fall. A pair of Rystad energy reports last week suggest it will take 5 years for employment in the oil and gas sector to reach pre-pandemic levels, even as parts of the Permian are on pace to reach record output later this year.
The EIA this morning highlighted retail diesel prices in New England, which surged north of $6 last week. Now that the NYH diesel bubble finally popped and wholesale prices dropped more than $1/gallon last week relief is on the way for consumers, and retailers will enjoy some incredible margins on the way down. It’s also worth noting that even though NYH spots were trading more than $1 above California levels during the price spike, retail prices along the East Coast were still trading below those on the West Coast.
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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.