Energy Prices Under Pressure
Energy prices are under pressure this morning, with oil prices down more than $1/barrel and gasoline prices down 3 cents/gallon, in what appears to be a delayed reaction to some bearish supply data from the DOE, and/or a lack of action by the FED.
US crude oil inventories surged nearly 10 million barrels last week to reach their highest level in 2.5 years, in spite of exports holding north of 2.5 million barrels/day, as domestic oil production reached a new record high of 12.3 million barrels/day and refinery runs dipped slightly. If you’re wondering how WTI managed to end the day with minimal losses after that large of an inventory build, note that Cushing OK stocks – the delivery hub for the WTI futures contract – didn’t change. This is yet another sign that the Gulf Coast is where the action is and the old hub is less relevant as the US transitions to an energy exporter.
Total US refinery runs were down 137mb/day last week as a large decline in PADD 2 of 252mb/day (representing 6.6% of Midwest production) off-set gains in PADDs 1, 4 and 5. Total refinery utilization is holding below 90%, which is well below the average for this time of year as several plants front loaded maintenance for 2019 expecting margins to improve when the IMO deadline approaches, on top of numerous unplanned outages this spring.
The FOMC made no change to interest rates yesterday (as expected) and essentially made no change to its “patient” stance on future rate moves which seemed to disappoint US equity traders as most indices sold off following that announcement. Energy futures had already settled for the day when that occurred, so that late selling in stocks seems like it may have contributed to the weakness we’ve seen overnight.
The Iran and Venezuela stories continue to have many more questions than answers, and it seems like we could be stuck in a range-bound market with choppy back and forth action until a more certain picture on one or both emerges.
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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.
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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.