Gasoline Prices Cling To Small Gains
It’s another quiet start to trading for energy markets, with crude and diesel prices trading modestly lower for a fourth day. Gasoline prices are attempting to cling to small gains amidst fundamental and technical warning signs that suggest that we could see sub $1 product prices in the near future.
In addition to the ubiquitous COVID worries, stimulus package negotiations continue to be a major short term theme. Early optimism for a deal faded Monday, which pushed equity markets from strong early gains to heavy afternoon losses, and carried over to knock energy prices (particularly diesel) down a peg. There’s another round of negotiations reportedly underway today, which is likely contributing to the wait-and-see approach to early trading.
The OPEC & Friends technical meeting seemed to be a non-event, although the chatter is that the cartel will need to push to change plans to start ramping up production in January in order to avoid another price collapse.
West Coast spot markets have seen some strength in over the past several days as reported refiner buying helped basis values recover losses they had earlier in October. Refinery runs remain well below normal due to the sluggish demand and weak margins, and there were reports that the P66 refinery in Rodeo had unplanned maintenance that seemed to lend additional strength to Bay-area values. As the chart below shows, the recent strength is barely noticeable compared to the large swings we’ve been accustomed to in years past. Similar to the muted reaction in Gulf Coast values as multiple hurricanes made landfall, the COVID demand slump seems to be acting as a buffer to any supply disruptions in the region.
The EIA is expecting the fall harvest and a colder than average winter to help alleviate some of the diesel inventory glut that the U.S. has been dealing with since COVID hampered demand, and forced more distillates that would normally be made into Jet fuel into other diesel products. Unfortunately for refiners that desperately need a break, the chart of Midwestern diesel demand below shows that the peak of harvest demand may have already happened last week.
Tropical storm Epsilon has been named, the 26th named storm of this record setting season. The storm is expected to reach hurricane strength as it approaches Bermuda by the end of the week, but should not directly threaten the U.S. or Canadian coastline. The other system being tracked by the NHC in the Caribbean is given just 10% odds of development.
Click here to download a PDF of today's TACenergy Market Talk.
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The 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.