Energy Prices Starting July With A BANG
Just when it looked like energy prices were collapsing at the end of June, they start July off with a bang and move sharply higher. ULSD prices are leading the move higher this morning, up 17 cents and trading back above the $4 mark. There’s not a smoking gun headline to pin the rally on, so it could be more about money flows from funds to end one quarter and start another than anything that’s changed the fundamental outlook of tight global supplies vs expectation of slowing demand…even though the US is expected to break travel records this weekend.
The big sell-off to end the first half of 2022 trading did leave refined products in rally-or-else status on the charts, with the $4 mark for ULSD and $3.65 for RBOB looking like pivotal levels to determine direction for the coming weeks. If this rally fails to hold, there could be much lower prices ahead, but if prices can climb back above the bullish trend lines then this week’s sell-off looks like a bear trap.
Russia is now doing its best Venezuela impression in the latest move in the ongoing global energy chess match, seizing control of the giant Sakhalin oil and gas project and forcing the international investors (who weren’t already leaving) out. That project accounts for roughly 4% of global LNG, and will be a major blow to Japanese firms that rely heavily on Russian exports.
OPEC and Friends agreed to maintain their planned production quotas in their meeting yesterday, which really doesn’t mean much as the cartel’s actual output lags far behind their targets as their COVID-related output cuts officially come to an end.
The DOE continues to struggle with system issues and is still unable to publish some of its weekly reports as a result. The agency was able to catch up on its weekly inventory stats Wednesday, and put out its Monthly Energy review yesterday, which is always exciting reading.
Click here to download a PDF of today's TACenergy Market Talk.
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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.
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.