October ULSD Prices Are Trading Within A Few Points Of A Fresh 8-Month High North Of $3.40/Gallon This Morning
After a one-day break, ULSD futures have resumed their march higher and taken back the role as the leader of the energy market with multiple serious weather events contributing to the rally. October ULSD prices are trading within a few points of a fresh 8-month high north of $3.40/gallon this morning, while WTI reached a new high for the year just shy of the $90 mark overnight.
The disastrous flooding in Libya that has killed more than 6,000 people is being blamed for some of the rally in oil prices as more than 1 million barrels/day of exports are currently shut in.
The API reported inventory builds across the board last week with gasoline stocks up 4.2 million barrels, diesel up 2.6 million and crude oil stocks up 1.2 million. The DOE/EIA’s weekly report is due out at its normal 9:30 central release time this morning.
The EIA’s monthly short term energy outlook (STEO) reduced gasoline demand estimates 2% for next year despite an increase in GDP projections from previous reports due to changes in the US census that show more retired-age people who tend to drive less. The report also reduced total liquid fuels consumption in the country as the agency reclassified natural gasoline and unfinished oils as crude oil supply, since those are growing byproducts of oil production that had been artificially inflating the demand estimates for several years.
The report also highlighted the tight diesel supplies along the East Coast as we head into fall and projects a larger than normal decline in inventories next month due to the scheduled refinery turnarounds starting at the Irving and Monroe facilities.
Speaking of Irving, an Energy News Today report Tuesday suggested that the facility was preparing to delay the start of its major maintenance work due to hurricane Lee, which looks like it could make a direct hit on the facility Sunday as a tropical storm. Roughly half of that 320mb/day facility was scheduled to be taken offline for around 6-7 weeks of work starting Sunday, but will now wait until the storm passes to try and avoid having to go through multiple shutdown/restart cycles and to keep vulnerable equipment out of harm’s way. The good news is that the storm that was pushing 165mph sustained winds late last week is only forecast to have winds in the 60-70mph range when it makes landfall, which some New Englanders will classify as just a nice breeze. The bad news is the storm is pushing a huge amount of water into areas vulnerable to storm surge that are already being inundated with regular thunderstorms, so there is still plenty of risk of flooding for communities in its path.
The family-owned Irving oil company was recently reported to be put up for sale, coinciding with the company losing a 40-year old property tax exemption from the Canadian government, so any impacts from this storm could also influence the decision on what to do with the facility long term. Given the strong years refiners have enjoyed, and the important role this facility plays in supplying the East Coast, it seems hard to imagine this storm could shut down the plant permanently, but then again that’s exactly what Hurricane Ida did to the P66 Alliance facility less than 2 years ago.
The August CPI report came in +.6% near forecasted levels with headline inflation up 3.7% on the year, while ex Food and Energy prices were up 4.3%. Stocks and energy futures changed little after the report was released, suggesting these figures weren’t surprising anyone. Most notable (if you’re reading this note anyway) are that gasoline and fuel oil prices were up more than 10% in August, meaning that fuel prices are once again the biggest factor in pushing inflation higher after being the largest deflationary data point for most of the past year.
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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.