Energy Prices Stumbling To Start Friday’s Session
Energy prices are stumbling to start Friday’s session, pulling back from the six week highs set Thursday, in what looks like a round of profit taking after a strong rally this week. Reports that Eurozone economies are now in a double-dip recession are taking some of the blame for the early wave of selling, even as signs continue to suggest that the U.S. recovery is picking up steam. Unless prices drop another nickel from current levels, there’s still a technical argument that we should see the 2021 highs tested in the coming weeks.
As the forward curve charts below show, the run up in prices over the past week has been fairly steady across the next 36 months, suggesting the move isn’t related to any near-term supply situations, but perhaps broader expectations for demand recovery.
There’s been a theme in Q1 earnings reports this week: major oil producers are largely surpassing expectations as prices have recovered, while oil refiners are still struggling as rising RIN prices offset improving crack spreads, although most refiners are now seeing large non-cash income gains as their inventory valuations increase with rising prices, offsetting the record write downs we saw a year ago when prices collapsed. RIN prices continued to trade near all-time highs Thursday, but the upward momentum slowed as the big rally in grain prices seems to be taking a breather.
There have been numerous articles written this week about 13 refineries that exceeded their EPA limits for Benzene pollution in 2020 (despite most plants running well below capacity) but so far it doesn’t appear those emissions will cause the plants to reduce runs. The Suncor refinery outside of Denver meanwhile is facing public challenges this week on the renewal of the 80-year old facilities air permits, which could threaten the state’s last refinery.
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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.