In Another Technical Breakout To The Upside 2-15
We’re in another technical breakout to the upside for energy futures this morning after a strong rally Friday set the stage for WTI to break above $60 overnight, and for refined product to push through to new 13 month highs.
The last time we saw futures trading at these levels was just after Iran launched missiles at a US base in Iraq in January of 2020, sparking some calls for $100 oil. The highs set back then also happen to set the next layers of chart resistance and an upside price target as the rally continues.
Trading volume is light due to the President’s day holiday in the US. Futures are trading until noon central time today, then will halt until the overnight session starts back up at 5pm. Spot markets are not being assessed so most rack prices will stay steady unless this rally picks up more steam and forces suppliers to make a holiday change.
The rally in prices is welcome news for oil producers, and we saw the Baker Hughes rig count increase for a 12th straight week. As has been the case for much of the past few years, the Permian basin accounted for the majority of the change in drilling activity with 5 of the 7 total oil rigs added in that region last week.
Speculators are also happy to see this rally, as they’ve continued to add to net length in oil and diesel contracts, although they have reduced their bets on higher gasoline prices for a 2nd straight week. Net length in WTI is just a few thousand contracts away from reaching a 2.5 year high, and open interest in both WTI and Brent has grown rapidly over the past few weeks, in a sign that large funds are willing to make large bets that oil prices can continue moving higher even after a 70% rally in the past 3.5 months.
The new US Secretary of State announced Friday that he would be revoking the Houthi rebel’s designation as a terrorist organization, just 2 days after assuring Saudi Arabia the new administration would not stand by after the Houthi’s attacked a Saudi Airport. Some reports suggested those attacks played a big role in Friday’s strong rally, even though they happened on Wednesday.
Today’s interesting read: Why the rapidly changing global refining landscape means big changes are in store for shipping routes.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.