Futures Mixed, Market Mulls Global Fundamentals
The lack of new headlines after Monday’s relatively quiet trading session has the market ruminating on whether OPEC+’s production cuts or China’s dim economic outlook should be in the proverbial driver’s seat in the short or long term. This morning sees gasoline futures edging higher by just under a penny while heating and crude oil both drift lower, but only just.
The 80-year record breaking storm that made landfall(?) in southern California ended up being much ado about nothing. Although it sounds fun to say the area received its annual amount of rainfall in just a day, it turns out that the annual amount of rainfall for the desert isn’t that much. Aside from temporarily flooded, muddy roads and a novel picture of a baseball stadium, Hilary came and went without any major disruptions, especially to energy infrastructure.
The EIA published an interesting note this morning highlighting that while the total commercial energy consumption dropped by 3% in 2021 (yes, they are a couple years behind), it increased in several states. Most notably, Alaska saw an 11% increase due to a 22% increase in the number of Heating Degree Days brought on by lower temperatures. When the data for this year comes out in 2025, it will be interesting to see if there’s a large shift from energy consumption due to colder temperatures to energy spent on keeping us from baking.
Tropical Storm Harold is expected to dump rainfall on south Texas through tomorrow as it makes landfall near South Padre later today. As of now it looks like the handful of refineries in Corpus Christi are the only bits of infrastructure in Harold’s path, but unless the pallid storm stalls out over the area, it’s expected to pass without any substantial impact.
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.