More Wild Action In Energy And Equity Markets This Week
More wild action in energy and equity markets this week with price swings and spreads that continue to confound.
Yesterday saw June ULSD futures (that have a delivery point in NY Harbor) drop 15 cents/gallon, and yet cash prices for ULSD in the New York harbor actually went up on the day as physical shortages continues to cause supply runouts and tight allocation all across the region.
Prompt values for diesel in the NY Harbor region are once again trading near a $1/gallon premium to June HO futures and to some neighboring markets. While Europe’s shortage of diesel is earning well-deserved credit for some of that phenomenon, the premium for NYH barrels vs European grades is now reaching the point where we may see some of those barrels that were destined for exports end up staying in the US. Which may help explain why the forward curve for futures has been coming back to reality this week. See Charts below.
US equity markets saw their biggest daily selloff in two years Thursday, just a day after some saw their biggest gains in two years as the FOMC’s plans to rein in inflation continue to create large amounts of turbulence for markets that got used to the idea of free money.
The April payrolls report estimated 428,000 jobs were added in the US during the month, while the February and March estimates were both revised lower. The official (U-3) unemployment rate held steady at 3.6% while the real unemployment rate (U-6) ticked up to 7%. The market reaction was fairly muted to this report as it seems in line with many expectations, and not a dramatic figure that might make the FED reconsider their plans.
Click here to download a PDF of today's TACenergy Market Talk.
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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.