Look Out Below? Energy And Equity Futures Are Pointed Sharply Lower Again
Look out below? Energy and equity futures are pointed sharply lower again Tuesday after Monday’s recovery rally started to fall apart in the afternoon hours. Omicron is once again getting credit for most of the selling, after Moderna’s CEO shared a much more pessimistic outlook for the variant than Pfizer’s CEO did Monday.
It’s the last trading day for December RBOB and ULSD contracts, and at this point, and given the heavy selling and backwardation in the market, we’re likely to see the January contracts take over the prompt position at prices we haven’t seen in 6 months or more. Already January RBOB is trading at $1.96, pushing several cash markets across the US to levels we haven’t seen since the spring RVP transition. ULSD futures meanwhile have already taken out Friday’s low trades, leaving the door open for another big push lower that may see diesel trading below the $2 mark this week as well.
The pullback in prices, and the post-holiday demand drop has also wiped out the premium to ship gasoline from the Gulf Coast to the New York harbor in just a few sessions. No such relief in ethanol however, as logistical bottlenecks keep prompt prices near the $4/gallon mark even as gasoline prices have crumbled.
It’s not just consumers who will enjoy the big drop in fuel prices: There was a big increase in new short positions in ULSD, WTI and Gasoil contracts last week ahead of the selloff, which pushed the net length held by money managers lower. A key point to watch this week will be how that length held by hedge funds weathers the selloff, as a mass liquidation often has a snowball effect pushing prices even lower.
With charts continuing to point lower and fear driving the action, the best hope for the bulls this week may come from OPEC, who postponed their technical committee meeting this week to take more time to evaluate Omicron. The cartel could pause their plans to increase crude output each month to try and stop the selloff, especially since many of its members are struggling to reach their production quotas given the supply chain issues impacting just about every industry in just about every corner of the world.
Speaking of supply chain challenges, a Reuters story this morning suggests things are about to get worse for traditional oil and gas producers as more than 40% of survey participants said they plan to leave their job in the next 5 years, with more than half of those aiming to move into renewables.
Today is the last official day of the 2021 Atlantic Hurricane Season, which ended with a whimper after a busy start that saw all of the names in the original list get used up. While this season brought us Hurricane Ida, one of the worst hurricanes on record, which continues to have impacts on oil and refined product supplies in the Gulf Coast today, the supply network is breathing a bit of a sigh of relief that things weren’t worse after 18 months of seemingly non-stop disruptions.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.