Gasoline And Oil Futures Are Approaching 6 Month Lows This Week
Gasoline and Oil futures are approaching 6 month lows this week, following a harsh reminder Wednesday that slowing demand may be the only way to deal with the global energy supply shortage.
According to the DOE’s weekly report, gasoline consumption in the US has been weaker than the COVID summer of 2020 in 3 out of the past 4 weeks. While the weekly demand estimates are notoriously volatile, and in many cases unreliable in real time, there is no mistaking the market’s reaction to that data point as futures have dropped 25 cents in the past 24 hours.
Wednesday’s wipeout for RBOB futures, trumped Tuesday’s turnaround and has moved the technical outlook back into clearly bearish territory with a good chance we could see another 30 cent price drop in the next few weeks. It’s not just futures that are falling either, as NY Harbor gasoline prices have started their inevitable slide down an impossibly steep backwardation curve, with cash values down more than 40 cents as basis values start their return to reality. The selloff in both futures and cash markets assures that the streak of consecutive days of lower retail prices across the US will continue past 50.
If you’re still wondering why California retail prices are more than $1/gallon higher than many other states, take a look at the state fuel tax charts below (courtesy of the API), and then remember California ends up adding another 40-something cents per gallon in LCFS and Cap & Trade program costs on top of these official taxes.
Diesel inventories remain 24% below their average seasonal levels. PADDs 1 & 2 continue to have the lowest inventory levels relative to prior years, and the Midwest looks particularly vulnerable in the coming months as harvest demand ramps up, and Gulf Coast refiners have their hands full sending Barrels out to sea, rather than north as they’ve done for decades during this time. Speaking of which, Diesel exports have averaged north of 1.5 million barrels/day over the past month, meaning nearly 2 billion gallons of distillates have been sent overseas during this time. Remember that the next time someone asks why gasoline is so much cheaper than diesel in the next few months.
OPEC & Friends announced the smallest output increase they’ve ever made yesterday, .1mb/d for September with some reports suggesting this move was a political slap in the face to the US President, while the official press release suggests it was because of “severely limited availability of excess capacity”. It seems there’s a good chance they’re both right.
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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.