New COVID Fears Grip Markets Worldwide
There’s a wave of risk-off selling gripping markets around the world Thursday as fears of a second-wave of COVID – and the shutdowns it’s bringing - seem to be driving the action. Energy futures appear to be caught up in the demand fear, with most dropping by more than three percent so far today, despite supplies getting tighter in the U.S. last week.
The Dallas FED’s Mobility and Engagement index is showing that the upward trend in movement around the U.S. may have topped out in the latest report. You might also notice similarities in that chart, with the WTI price charts below, which makes sense given transportation fuel being such a major piece of energy demand, and helps explain the negative reaction in prices now that it looks like we’ll see substantial parts of the world start enforcing lockdowns once again.
The API was reported to show inventory draws of 5.4 million barrels for crude oil, 3.9 million barrels of distillates, and 1.5 million barrels for gasoline. Those numbers seem to have been discounted heavily (or perhaps ignored completely based on the price action) due to the impact of Hurricane Delta, which temporarily closed most Gulf of Mexico oil production and numerous refineries. Since the storm did not appear to do major damage that would impact supply long term, it’s expected we’ll see a quick recovery for the production that was shut in. The DOE’s weekly status report is due out at 10 a.m. Central.
Bullish for oil, bearish for refiners: the new Chinese refineries coming online are soaking up the excess oil supply that’s been floating on ships for months. This should help oil producers, but is more bad news for beleaguered refiners around the world, as refining output may well become a new weapon in the trade wars.
Two new potential storm threats have popped up on the NHC’s radar today, but both are given just 20% odds of developing, while the system they’ve been watching this week is now given 0% odds.
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.