WTI And Brent Crude Oil Futures Lead The Way

Concerns surrounding the possibility of Iran and/or Saudi Arabia getting dragged into the just days-old Israel-Gaza war drove energy prices higher yesterday. WTI and Brent crude oil futures lead the way, both adding ~$3.50 per barrel, good for 4.2% gains on the day. Refined products rallied in sympathy but not without conviction: ULSD jumped 6.5 cents per gallon while RBOB tacked on 4.6 cents per gallon.

Crude oil futures are taking a break so far this morning, drifting lower as traders mull the implications of an escalating war in the Middle East. Israel is preparing for all-out war after the brutal surprise attack carried out by Hamas on Saturday killed 900 and saw 100 kidnapped Indications on direct or indirect involvement from oil producing allies on either side of the fight remains murky.  

On the other side of the barrel, prompt month refined product futures are riding yesterday’s momentum, with RBOB and HO trading 1.4cpg and 4.4cpg higher, respectively. Both products are facing a technical support on their weekly charts: HO has bounced off its 50-week moving average while RBOB is currently buoyed by its 200-week moving average. If ULSD manages to finish the week lower than the $2.90s, a precipitous drop down to $2.40 looks to be on the table. Same this for RBOB: finishing below $2.20 leaves the door to $1.90 wide open.

The National Oceanic and Atmospheric Administration is tracking two potential storm systems so far this week. The one with the highest chance for cyclonic development (80% over 7 days) will likely progress through its life cycle out to sea. The second storm, brewing in US refiners’ backyard, has been bumped from a 10% chance of forming, to 30% overnight. While still unlikely, this will be the system the energy industry will be keeping an eye on.

The EIA published a note this morning, highlighting that in 1H 2023, US crude oil exports have reached highs not seen since 2015. They note, however, that we still import more oil than we export, due to American refineries having the capability to refine heavy-sour grades that are bought at a discount from Canada and Mexico.

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