Inventory Draws And Positive Economic Reports
Inventory draws and some positive economic reports are getting credit for another modest push higher in energy and equity markets to start Tuesday’s trading, but petroleum futures remain stuck in the sideways range that’s held them for most of the summer.
The API’s weekly report was said to show crude oil stocks decreasing by 6.3 million barrels, gasoline down 5.7 million and distillates down 1.4 million. Last week’s data will be even harder than normal to estimate with most Gulf of Mexico oil production shut in, nearly 20 percent of the country’s refining capacity under some state of precautionary operational cut backs, and numerous port closures. The EIA’s weekly report is due out at its normal time this morning, and should give a more detailed view into Laura’s impacts, most of which appear to be short-lived.
Speaking of which, a lack of power continues to hamper restart efforts at a few plants in the Port Arthur hub, while damage assessments are still underway for the Lake Charles plants, leaving roughly one million barrels/day of capacity offline. While some allocations remain in place in downstream markets as a result of these outages, overall price action in both futures and cash markets has been muted and outages rare thanks to the excess inventory on hand in most areas.
Nana and Omar were both named as tropical storms in the past 24 hours, but neither system poses a threat to the U.S. coast. Nana is heading west into Central America, and Omar is heading east out to sea. Two more systems are moving off the coast of Africa, one of which is given 60 percent odds of developing that we’ll need to keep an eye on over the weekend.
The EIA this morning published a look at global jet fuel demand, which has taken the hardest hit of the petroleum products as commercial air travel became transporta-non-grata during the pandemic. The report notes that while demand remains well off pre-COVID levels, the U.S. is seeing a stronger recovery than most international markets.
Holly Frontier published an investor presentation this morning, which highlighted its push for Renewable Diesel production at the Artesia, NM and Cheyenne, WY refineries, currently expected to come online Q1 2022, and expected expansion of its HEP midstream business. The presentation also highlighted the company’s ability to capture increased returns in a handful of Western U.S. markets, vs their peers based in the U.S. Gulf Coast.
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.