Natural Gas Futures Price Drop Due To A Much Warmer Winter Than Expected
Diesel prices have resumed leading energy futures lower this morning, dropping over 2% in early morning trading. It looks like the only technical support to be seen between here and the $2.50 level is a relatively weak and oft-broken 5 day moving average at ~$2.83, which the prompt month contract is testing today.
Gasoline and crude oil futures are trailing their distillate counterpart, each trading lower .75%-1% to start the day.
The Department of Energy reported an across-the-board build in its headline inventory values last week. Gasoline stockpiles in the US increased for the fifth consecutive week, jumping 5 million barrels but still remaining well below its 5-year seasonal range as exports remain strong. National diesel inventory rose nearly 3 million barrels last week, returning to pre-war levels.
Six months ago, global demand for natural gas was through the roof and Europe was staring down the barrel at what they anticipated to be a brutally cold winter. Since then, due to surprisingly effective planning and a much warmer winter than expected, Henry Hub natural gas futures price has dropped 70%. This precipitous drop has put a damper on enthusiasm surrounding oil and gas production in the US.
The warm winter hasn’t been unique to Europe: the NOAA has measured 8% less “heating degree days” this winter season. While that may not seem like enough to move the needle, it translates to a >$1 per gallon retreat in retail heating oil prices since November, despite seasonally low distillate inventories.
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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.
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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.