Monday Rally Failed To Hold On
The Monday rally sparked by promises of production cuts failed to hold on, and WTI settled lower for a record setting 11th session, and the selling continued overnight. RBOB gasoline futures reached a fresh 13 month low this morning, and WTI came within a few cents of reaching its lows for the year on what is shaping up to be day # 12 of its selloff.
The US/Saudi relationship continues to get more complicated after the Kingdom’s oil minister promised unilateral production cuts in December over the weekend, and the US President fired back that he hoped they would not Monday morning. The latest Twitter attack on OPEC & Friends is seen by some as making it more likely that the cartel will announce a new production cut in December as they fight to end the sell-off while also battling to prove they won’t be pushed around by the US.
Right on cue, OPEC’s monthly oil market report released this morning showed another month of increasing output, with gains from Saudi Arabia and UAE outpacing losses from Iran and Venezuela. The cartel’s forecasts also show a bearish combination of lower demand and increased supply estimates for 2019, and hints that the group may act in December to, “…support oil market stability”.
ULSD futures once again find themselves as a reluctant participant in the selling, as diesel stocks remain relatively tight compared to gasoline and oil. ULSD has traded below its 200 day moving average in each of the past 3 sessions, but so far has managed to climb back above that support every time. If we see that level break this week, charts suggest a test of the July lows around $2.04 is likely, but if it holds, it’s possible that strength in distillates could be a key factor in finally ending the petroleum price collapse.
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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.
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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.