HO And WTI Reach Fresh 3-Month Highs As Inflation Outlook Improves

Market TalkWednesday, Jul 12 2023
Pivotal Week For Price Action

ULSD and WTI prices are both trading at fresh 3-month highs this morning as energy and equity markets seems to be embracing an improving outlook on inflation, and shrugging off inventory builds in the early going. 

The push higher this week opens a big of a technical window for WTI to make a run at the 200 day Moving Average, which is currently around $77.55, and managed to harshly repel 2 other rallies over the past year. 

ULSD has clawed its way back into the $2.60 range that held prices for most of March and April and there’s an argument that this opens the door to another 15-30 cents of more gains in the coming few weeks. Given that diesel inventories haven’t been able to recover much despite the freight recession this year, there’s also a fundamental argument being made that ULSD prices are poised to rally as we approach the busier demand seasons for distillates. It’s also worth noting that the correlation between ULSD daily price moves and the S&P 500 has reached a 2 year high this week, so for now, it looks like diesel prices may simply be following the stock market, which is adding to the bullish outlook today. 

The S&P 500 is trading at a 15 month high this morning after the June CPI report calculated inflation at 3% for the past 12 months, which was slightly below the “official” estimates. If it weren’t for the big drop in energy prices over the past year however, the inflation rate would be north of 5% which may eventually cause a pullback in the early rally if traders realize this better-than-predicted figure simply isn’t as good as it seems.

The API reported inventory builds across the board last week as the holiday hangover for fuel demand took hold. The industry group estimated inventory increases of 3 million barrels for crude oil, 2.9 million for distillates, and 1 million barrels for gasoline. The EIA’s weekly estimates are due out at their normal time this morning, and there’s a good chance we’ll see a big pullback in demand figures after gasoline consumption reached an 18-month high to end June, but evidence at the rack levels suggests its dropped sharply in the first third of July.

The DOE increased its outlook for US GDP growth for 2023 and 2024 in its latest Short Term Energy Outlook which helped increase the outlook for fuel prices. The agency also highlighted a change in operable refining capacity over the coming year now that Lyondell has pushed back plans to shutter its Houston refinery, but also failed to note the upcoming conversion of the P66 Rodeo CA facility to renewable production which will result in a net decrease of roughly 100mb/day. The report lowered the forecast for renewable diesel production next year due to the EPAs final ruling on the RFS through 2025 that increased targets for advanced biofuels, but not by enough to satiate the appetites of the government credit harvesters.   

Today’s interesting read: If you weren’t already convinced that ESG was a farce, read this note on how investors who don’t read the fine print ended up financing Saudi Aramco.

Click here to download a PDF of today's TACenergy Market Talk.

Market Talk Update 07.12.2023

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Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action