Markets Climb The Wall Of Worry
WTI was able to punch through $40 in Monday’s session, sparking a move to fresh three month highs for both oil and refined product contracts overnight. Equity and energy markets appear to be climbing the wall of worry in hopes that reopening can continue despite rising infection counts, and the fact that the U.S. and China trade deal is still moving forward.
RBOB gasoline has led the way for much of the eight day rally, and looks to be the first to test new upside resistance at the 200 day moving average just under $1.34. ULSD looks like it has room on the chart to close the gap left by the March meltdown with a move to $1.38. While the weekly charts suggest more upside is likely, faster moving indicators have prices in overbought territory, setting the stage for another round of fast and heavy selling as we’ve seen a handful of times already during this recovery rally.
A WSJ article this morning suggests refiners may ultimately put an end to the bull run for crude, as crack spreads continue to hover around break-even levels. The crack-spread chart below shows that the wide crude spreads that had enhanced margins for many U.S. refiners for years have also tightened up, adding to the challenge of this most unusual operating environment.
A lack of export demand has been a big challenge for many U.S. refiners in the past few months, and an EIA note this morning suggests that it’s not just refined product struggling to find a home overseas as LNG exports have been slashed in half this year.
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.