Gasoline Futures Have Dropped More Than 20 Cents Since Reaching A Record High Monday Morning
Gasoline futures have dropped more than 20 cents since reaching a record high Monday morning. While a 20 cent swing used to be a big deal, these days it’s less than a 5% move, and barely raises an eyebrow unless it happens in a couple of minutes rather than a couple of days.
There are signs across the country this past week that demand may be tapering off – some of which is no doubt caused by high prices - but it’s too soon to know whether this is just a normal holiday hangover for demand, or if staycations here to stay.
Despite the sharp pullback this week, gasoline prices remain comfortably above their bullish trend lines for the time being, and we won’t get too excited about a potential end of the rally until we see that support – some 30 cents below current values – finally break down.
ULSD meanwhile filled the chart gap at $4.40 that was left behind by the May contract’s record smashing backwardation, which could actually spark some short term profit taking now that that target has been fulfilled. There’s still a chance that we are about 2/3 of the way into a major head and shoulder reversal pattern that could eventually see diesel prices drop by $1/gallon or more this fall, but for now ULSD charts are also comfortably pointing higher even though they’re in the red this morning, leaving the door open for a run at the March high of $4.67.
Perfect timing:While the US may never build a new petroleum refinery again, Kuwait and Saudi Arabia are ramping up operations at two new large facilities just in time to earn record setting margins as the world struggles with a shortage of capacity.
A major factor in the global supply/demand (im)balance over the coming weeks will be how Chinese demand bounces back with 50 million people let out of lockdown, and perhaps more directly how Chinese refiners can respond after many had to drastically cut runs due to the plunge in demand. Just-released export quotas remain well below 2021 levels, but are increased somewhat which should help alleviate current inventory overhangs, and encourage those plants to start ramping up operations again once they clear the tanks.
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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.