Mixed Bag For Energy Markets
It’s a mixed bag for energy markets to start Thursday’s trading with Brent and ULSD futures moving higher, RBOB sliding into the red, while WTI holds near break-even on the day. Wednesday’s DOE status report had a little something for the bulls and the bears, which may be contributing to the cautious start when charts suggest more strength ahead, particularly for crude oil prices that have broken through longer-term technical resistance levels this week.
Refined product inventories continue their seasonal decline, with Gasoline most notably falling from all-time high levels in January, to the lowest March levels in more than 3 years last week. Refinery runs that have dropped from record highs to below-average levels in the past 3 months – specifically the rash of unplanned maintenance issues – appear to be the key driver of those inventory declines as both demand and export flows remain relatively flat.
The EIA’s estimate of US Oil production reached a new all-time high last week at 12.2 million barrels/day, which is 1.7 million barrels more than what was pumping this time last year and nearly 3 million barrels/day more than the previous 5-year seasonal average. Crude oil inventories had a large increase on the week, but remain at average levels for this time of year thanks to the robust export activity taking place primarily along the gulf coast.
Today’s interesting read: earlier this week many were in awe at the profits reported by Saudi Aramco. Lost in the boring details was news that the kingdom’s largest oil field is pumping much less than pretty much anyone believed.
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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.