Lack Of Enthusiasm From Gasoline And Crude Oil Prices
If at first you don’t succeed…Diesel prices are trying to lead the energy complex higher this morning, after rally attempts stalled out Monday and Tuesday. This time could be different, however, as ULSD futures have broken the top side of their month old sideways trading range in the early going, which could spark some buying from trading programs and bandwagon jumpers. If diesel futures can hold above the $1.84 mark today, there’s a good chance we will see them push into the mid $1.90s in the next week, but if they fail, it seems like we’ll be stuck back in the sideways range for a while longer.
A lack of enthusiasm from gasoline and crude oil prices seems to be a limiting factor in the diesel rally so far. RBOB futures have managed to move higher in the past five sessions, and yet the combined gains during that stretch are less than three cents, suggesting a lack of conviction from buyers after prices doubled from November to March.
The IEA’s monthly oil market report followed the lead of the EIA and OPEC monthly reports, increasing global fuel demand estimates as vaccine & stimulus package rollouts are getting people moving again. The IEA’s report did highlight concerns that rising case counts in Europe, Brazil and India could slow the demand recovery, and noted that excess supply capacity from OPEC and the U.S. should help keep prices from getting too high. The IEA also highlighted that Iran’s oil production has reached a two year high as the country is finding ways to get around U.S. sanctions, which could bring more downward pressure to prices if that trend continues.
The EIA this morning highlighted several new oil projects in the Gulf of Mexico that could bring 200mb/day of production online by the end of next year, which is a completely different outlook than a year ago when many projects were shutting down. The report also highlights the threat hurricanes create to GOM production, as early forecasts call for another above-average season for storm activity, after we just lived through the most active season on record.
Chicago-area refineries are making news this week. The DOJ announced a settlement deal with ExxonMobil and the state of Illinois that requires Exxon to pay $1.5 million in fines, and spend $10 million in upgrades to its Joliet facility. The headline writers are touting this as the new administration’s tough stance on the energy industry, but in reality this settlement stems from an agreement made 12 years ago. Meanwhile, BP is reportedly selling off a major stake in its U.S. pipeline assets, as it continues to shed assets to pay down debt, cover severance payments from their annual reorganizations and continue paying their $1.2 annual settlement the 2010 Gulf of Mexico oil spill.
Meanwhile, two midcontinent refining companies still aren’t getting along taking with the war of words and shareholder votes between Carl Icahn backed CVR and Delek being taken to the court of public opinion, proving that there’s apparently more money to be made through financial engineering of refining-related companies than there is in engineering those refineries to make more product.
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View AllThe 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.