Energy Rollercoaster Showing Signs Of Manic Behavior
The energy rollercoaster is in full effect this week as a huge reversal Thursday rally wiped out Wednesday’s heavy losses, only to see another round of selling to start Friday’s trading. If futures settled at current levels they’d still be down more than 30 cents for gasoline and 35 cents for ULSD for the week, even though we had a 20+ cent recovery in Thursday’s session.
This type of manic behavior can be a sign of a market that’s changing direction, as the “weak hands” give way to the “strong hands” who are in the market for the long haul, but the big question is if these huge swings are marking an end to the 7-month bull rally that more than doubled fuel prices, or an end to the 1-month pullback that cut them down by more than $1? For now, short-term charts continue to give slight favor to prices moving lower – even though it’s tough to make a fundamental argument for more selling when you look at the inventory charts below.
US fuel inventories and days of supply for both gasoline and diesel are below the low end of their seasonal ranges, despite refineries running near their max in most regions. Refined products saw a big increase in demand last week, which is largely expected leading up to a major US holiday, but total US petroleum demand is still holding below the levels we saw this time of year in 2019 and 2021.
The West Coast is bucking the trend of the other US regions, with supplies for both gasoline and diesel above their seasonal averages, even though refinery runs remain well below year-ago levels.
Want to know why Group 3 diesel markets went from the weakest in the country for months to one of the strongest this week? Take a look at the PADD 2 diesel chart below.
Equity markets gave up their overnight gains after the June payroll report, which showed another strong month for job growth in the US. For those that remember the QE years of a decade ago when bad economic news was good for the stock market because it meant the FED would print more money, it’s easy to understand why good news on the labor front is bad news for markets because it all-but assures the FOMC will continue raising rates aggressively. While energy markets were already in the red prior to the report, they’ve given up another couple of cents afterward in sympathy with stocks.
Charts from the DOE’s weekly status report included.
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.