Markets Cheer News Of New U.S. Treasury Secretary
Energy markets are on the cusp of a technical breakout to the upside with diesel prices hitting eight month highs, while crude and gasoline prices follow close behind.
Markets around the world seem to be cheering the news that Janet Yellen – the relatively market-friendly former FED Chair – is being tapped as the new U.S. Treasury Secretary. That move is seen by many as a sign that the new administration will be more focused on economic recovery than reform. In addition, reports that the Presidential transition is moving forward seems to be easing concerns over a protracted legal battle.
ULSD is trading higher for a seventh consecutive day, reaching a new eight month high and moving half way into the chart gap left behind during the March price collapse. WTI came within three cents of hitting an eight month high of its own overnight, setting up a critical test of the sideways trading pattern that’s contained the price action for June. There’s an interesting potential move on the WTI monthly chart, as the short lived selloff Sunday, November 1 and subsequent rally could make an outside up monthly bar that breaks both the low and the high ends of that sideways range. If prices can settle the month by breaking through the top end (near $44) there’s a strong case to be made that we’re soon going to see $50 crude.
Diverging diesel markets: Midwestern diesel spreads are collapsing this week after hitting their highest premiums in years as the annual post-harvest demand slump seems to be in full force across the region. Gulf coast values saw modest weakness in sympathy as the window to profitably ship barrels north has closed. West Coast values meanwhile are trading at double digit premiums to futures, with LA spots rebounding sharply from a mid-November slump, in what seems to be a reaction to a handful of unplanned refinery issues in the area.
The CFTC published a report on WTI’s plunge to negative values on April 20th. The report cites numerous fundamental and technical factors, and stops short of placing blame, and in many ways suggests the market performed as intended. The results are disappointing many who were looking for a smoking gun, and those that have a hard time understanding how complex commodity futures trading can be. One interesting point brought up in the report is the relatively high open interest in WTI in April, and the amount of positions held by “non-reportable” trading groups, meaning those with small enough positions they aren’t required to report to the CFTC. Those findings are consistent with earlier reports that suggested retail investors – many in China - were left holding the bag when they started trading in WTI without understanding how the contract really works.
NYMEX contracts will trade every day this week, although there will be no settlements published Thursday due to the Thanksgiving holiday in the U.S. Spot markets will not be assessed Thursday or Friday, so most rack prices will carry from Wednesday night through the weekend, even though futures will continue trading.
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.