Energy Prices Starting Week Soft With Indications Of Slowing Reopening Recovery From World's Largest Oil Buyer

Market TalkMonday, Jul 17 2023
Market Talk Updates - Social Header

Energy prices are starting the week on a soft note with losses of around 3 cents for refined products and $1 for crude, following disappointing GDP growth from China that suggests the reopening recovery in the world’s largest oil buyer has slowed, and oil production has resumed at Libya’s 2 largest oil fields which bring nearly 400,000 barrels/day back online.

The pullback that started Friday does help alleviate the overbought condition brought about by a 3-week-long rally that pushed prices close to a 3-month high, and it’s still too soon to say that run has come to an end. The $2.60 range should be a pivotal area for both gasoline and diesel futures this week to determine if we’re just witnessing a short-term correction or the end-of-the-summer rally.

Money managers were jumping on the energy bandwagon again last week with large increases in speculative net length added across the board. Short covering was also heavy on the week as those funds that had been betting on lower prices seemed to be throwing in the towel as prices broke out to the upside. From a historical perspective, the net length held by funds is still small, so there’s plenty of fast money that could still come into the energy arena if the recent uptrend continues.  These funds are notoriously fickle, however, so there’s certainly no guarantee they may continue to push prices higher.

Baker Hughes reported a decline of 3 oil rigs and 2 natural gas rigs last week, which drops the oil rig count to its lowest level since March 2022. The reduction in drilling activity was focused in the Permian basin, which saw a drop of 5 total rigs last week, and Texas saw a net decline of 8 rigs while New Mexico, North Dakota and Louisiana all increased.

The EPA denied all 26 small refinery exemption requests under the Renewable Fuel Standard Friday, consistent with the policies of the current administration over the past couple of years. The decision notes the reason, small refiners don’t face economic hardship due to the RFS….because the market price for these fuels increases to reflect the cost of the RIN, much as it would increase in response to higher crude prices.” Remember that when your state’s clean fuels program claims it won’t cause prices to go up. RIN markets didn’t seem to flinch at this news as the denials were widely expected.

Click here to download a PDF of today's TACenergy Market Talk.

Market Talk Update 07-17-23

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action