Energy Prices Struggle For Direction
Energy prices continue to struggle for direction this week, with crude prices down slightly, diesel up slightly and gasoline flat, leaving the complex stuck in its sideways summer trading range. Tomorrow OPEC & Friends are holding a meeting to discuss output quotas, which could be the catalyst to break prices out of their range. So far, there are no indications that a shift in policy has been made.
Even the shutdown of the country’s largest gasoline pipeline wasn’t enough to push RBOB futures through upside resistance at the 200 day moving average, and there are less than two weeks remaining of the summer grade futures contract trading in the prompt position, which is making gasoline prices look vulnerable to a big move lower if they can’t figure out a way to rally this week.
It’s a similar story for crude futures. Yes, WTI settled at its highest closing value in five months yesterday, but it has not threatened its intraday highs from earlier in the spring, and has sold off each time it’s traded near these levels. With Brent and refined products still entrenched in their sideways ranges, WTI is also looking like it’s in “rally or else” range.
Colonial’s main gasoline line remains shut, with repairs underway to fix a leak that spilled an estimated 63,000 gallons (1,500 barrels) in North Carolina. The pipeline also announced it was shifting operations to allow some gasoline to continue flowing via its main distillate line. Based on the muted market reaction, and the relatively small amount of fuel leaked, it appears that this issue will be solved in the next few days. There have been some allocation restrictions put in place in nearby terminals as a result of the reduced shipments, but so far nothing anywhere close to the widespread outages that we saw in 2016 when the pipeline had a similar shutdown following a leak.
The exception to the going nowhere rule is West Coast gasoline prices that reached their highest levels since March yesterday, thanks to a pair of unplanned refinery issues on top of the numerous economic run rate reductions.
The EIA this morning reported that bio-diesel production and margins have seen less of an impact from COVID demand destruction in 2020 than other fuels. The relative lack of impact is thanks to less blend percentage restrictions than ethanol and the various incentives in place to encourage blending. The report doesn’t mention that those incentives actually helped bio-diesel prices transact for negative values for an extended period this spring when ULSD futures were below $1. It does, however, warn that bio-diesel production will be challenged by growing imports of renewable diesel.
Just in time for no one to want to use it, the White House is enabling oil drilling in the Arctic National Wildlife Refuge. That would have been useful in 2008, not so much in 2020.
The national hurricane center is giving high probabilities for two new tropical storm systems to form in the Atlantic this week. The paths are unclear this far out, but either one still has the potential to be a threat to the U.S. next week.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
Week 39 - US DOE Inventory Recap
Crude Oil Futures Are Leading The Energy Complex Higher This Morning With WTI Jumping 2% And Exchanging Hands Above The $92
Social Media
News & Views
View All
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.