Energy Prices Retreat, Weak Economic Data Overshadows Supply Disruptions
Energy prices are pulling back to start the new week, failing to follow through on the strong finish we saw on Friday that pushed WTI and ULSD prices close to 3-month highs. The early losses seem pegged to more weak economic data overshadowing some disruptions to supply. Financial markets around the globe seem to be facing a similar tug of war as the world’s largest consumer continues to battle inflation, while the 2nd largest economy is facing the opposite concerns.
Money managers were getting more bullish on crude oil last week, adding fresh length to Brent contracts, while slashing short bets on both WTI and Brent. The outlook from large speculators is more mixed for refined products with ULSD seeing a tick higher in bets on higher prices, while RBOB and Gasoil contracts both saw a healthy amount of new shorts added betting that prices will move lower. While open interest for crude and products has recovered from last year’s decade lows as the extreme volatility was too risky and costly for many, total outstanding positions remain below levels we saw at any point from 2015-2021.
Baker Hughes reported a net decrease of 5 oil rigs active in the US last week, bringing the total to a fresh 15-month low. Natural gas drilling saw a big rebound, with a net increase of 11 rigs last week, 7 of which were in Louisiana. That increase in natural gas drilling snapped a 2-month skid that saw 37 rigs taken offline and dropped the total to the lowest since February of last year.
Gasoline basis values on the West Coast continued to rally last week with the 3 major spot markets all trading north of 30 cents/gallon above RBOB futures. Several unplanned refinery hiccups seem to be the driver of the basis rally and yet another unplanned flaring event was reported over the weekend in the LA area.
On the other end of the spectrum, Chicago-area diesel has plummeted to a discount of 30 cents or more below ULSD futures as the summer demand doldrums in between planting and harvest season coincides with peak refinery runs as facilities try to maximize their gasoline output during the driving season. This phenomenon seems to happen once or twice a year as PADD 2 refiners often enjoy significant discounts for purchasing Canadian crude, so will continue to run the plants hard even though they may be taking losses to clear their extra diesel.
A major fire at a PEMEX oil platform in the Gulf of Mexico Friday killed at least 2 workers, with one still missing, and has shut in approximately 170mb/day of production.
A vehicle fire at a Kinder Morgan terminal in Pasadena TX does not appear to be impacting operations at the company’s truck loading rack nearby which is one of the busiest racks in the city.
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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.