How Long Will It Last?
How long will it last? That seems to be the question of the day, whether in regards to the virus, shelter-in-place orders, or the recovery rally in stocks and energy prices after the DJIA had its best percentage gain in 87 years Tuesday.
Unfortunately, so far this morning it seems like the answer to the recovery rally is not very long as both stocks and energy futures have given back most of their overnight gains and several contracts are now moving lower. RBOB gasoline futures are holding to modest gains in the April and May contract, although remain well off their intra-day highs from Tuesday’s session.
From a short term technical perspective, this overnight pullback is looking bearish for energy futures as prices were unable to break the downward sloping trend-line that’s been in place since the March 9 price plunge. With fundamental supply/demand issues still just a guessing game, if those technical resistance layers aren’t breached this week, there’s a good chance we’ll see another round of heavy selling soon.
Worth noting in the political drama playing out in Washington: One of the sticking points in the stimulus package is the attempt to tie cleaner jet fuel requirements to any bailouts of the airline industry.
Speaking of Jet Fuel, the EPA is reportedly considering allowing temporary waivers to allow jet fuel to be blended with other lower-sulfur diesel grades to help the industry alleviate a glut of the suddenly unwanted product. The EPA is also considering a waiver or delay of the summer RVP requirements for gasoline, as winter grade inventories are piling up and may not be transitioned in time.
Following moves at numerous petroleum refineries this week, ethanol production facilities are announcing numerous cut backs to offset the plunge in ethanol-blended gasoline demand. On the bright side, as predicted, some ethanol producers (along with other alcohol distillers) are temporarily ramping up production of sanitizers instead of their normal products.
The API reported inventory draws across the board last week with Crude stocks down 1.2 million barrels, gasoline down 2.6 million barrels and distillates down 1.9 million barrels. The DOE’s weekly status report is due out at its normal time today, and the agency has not yet indicated that reporting would be delayed in the future due to the change in employees working remotely.
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.