Energy Prices Modestly Higher to Start Tuesday, EIA's STEO Imminent
The choppy action continues with energy prices seeing modest gains to start Tuesday’s trading, after a back-and-forth session Monday ended with small losses.
ULSD futures did manage to set a new 3-month high intra-day Monday, and are holding near those levels this morning, so could be poised for a small technical break out to the upside if they can get north of $2.60. WTI is also hovering near the top end of its summer trading range, which could help make the case for stronger diesel prices ahead, even though gasoline prices are lagging as 2 of the big 3 summer driving holidays are now in the rear-view mirror.
Later this morning we’ll see the EIA’s monthly energy outlook with updated price and supply forecasts for the year. Yesterday the agency highlighted how biofuels are displacing distillates on the West Coast due to the rapid influx of Renewable Diesel coinciding with expanding environmental credit programs in California, Oregon and Washington. A recent article from McKinsey highlights the challenges faced by refiners looking to convert units to product more RD and SAF, and projects that the rapid increase in biofuel production is about to plateau.
California spot markets continue to be the highest in the nation, even before adding on the highest taxes & environmental fees of any state, after another unplanned refinery hiccup in the LA area Monday. The Midwest is facing the opposite problem these days, with spot markets already pricing in big discounts for distillates and a Detroit refinery requesting permission to increase production to full capacity that will add to the oversupply if approved.
Click here to download a PDF of today's TACenergy Market Talk.
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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.