FED Signals That Days Of Money Printing May Eventually End
A big rally in the US Dollar after the FED signaled that the days of money printing may eventually end has become the big story this week that has sent a wave of “Risk Off” selling pressure across numerous markets. The selling this week sets up a pivotal test for energy futures in the back half of the month. If they can hold on around current levels and find a bid, the longer term upward trends are still intact, but if they drop another couple percent from here that opens the door on the charts for a 20-30 cent drop for products this summer.
Commodities in general have been under heavy selling pressure this week, with several wiping out their entire 2021 gains as supply chains start to catch up to the rapid swings in demand. While crude oil has managed to buck that trend so far, WTI is now giving up its gains for the week and may struggle to resist the pull of refined products and other commodities if the dollar rally continues. The selloff in corn & soybeans has added to the downward pressure in RINs that wiped out a third of their value in just 4 days. We did see values reach a temporary floor in Thursday’s session, but sellers moved offers lower in the afternoon suggesting the move lower may not yet be done.
It was a Reuters report that kicked off the huge sell-off in RINs one week ago, and a new report highlights the large obligations refiners have outstanding as of their Q1 earnings filings. While this week’s sell-off no doubt has many refiners breathing a little easier as Renewable Volume Obligation (RVO) values dropped to $.16/gallon of transportation fuel produced from $.23, prices are only back to where they ended the 1st quarter, so from a value standpoint, those refiners are no better off now than they were as of those reports.
Tropical Storm Claudette is expected to be named later today before making landfall in Louisiana overnight. The storm’s current path suggests it won’t make a direct hit to any of the numerous refineries in the area, but will dump heavy rains on an area that’s already been saturated this year, and is plenty weary of hurricanes from the parade of storms that hit them last year.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe 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.