Money Managers Reduced Their Bets On Higher Prices On All Of The “Big Four” Energy Futures Contracts, Except WTI
It’s a mixed bag for energy prices this morning as Brent crude oil futures are trading modestly lower while HO leads refined products and WTI higher with ~3% gains to start the morning. Poor economic data from China is taking credit for the drop in European oil prices as the world’s second largest economy struggles to recover following pandemic lockdowns.
Money managers reduced their bets on higher prices on all of the “big four” energy futures contracts, except WTI. The addition of net length in the American crude oil benchmark seems to be coming from the trimming of short positions as traders get out of the way of what looks to be a runaway train. Despite Chinese demand concerns, oil prices have rallied since mid-August.
The EIA published an article this morning highlighting the rapid growth of renewable diesel in recent years. At the start of this year, RD production reached 3 billion gallons, surpassing U.S. biodiesel production capacity for the first time in history. As a reminder, renewable diesel is chemically equivalent to petroleum diesel and nearly identical in its performance characteristics and can be used in existing diesel engines without any modifications.
The National Hurricane Center is currently tracking two storms that are likely to develop into cyclones over the next week. The closer storm looks to be pointed at the Lesser Antilles while the one just coming off the west coast of Africa looks to be headed a little further north. While they are still a ways away from US energy infrastructure, there are hardly any atmospheric conditions hampering their development.
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View AllThe 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.