Oil And Gasoline Prices Are Seeing Modest Losses This Morning
Oil and gasoline prices are seeing modest losses this morning, which are being blamed on demand fears coming from China and a hawkish FED, while distillates are seeing modest gains after Thursday’s big drop.
Crude oil prices would end the week with a loss if they settle near current values, but they did manage a higher high and higher low on the charts, and didn’t threaten the bullish trend line which keeps the door open for higher prices to come. It’s a similar story for distillates, which have stalled out since racing to $4 once they broke out of their triangle pattern, but are still leaving the door open to higher prices in the near future. Gasoline meanwhile looks the weakest both fundamentally and technically, even though we’re just around the corner from the annual parade of “driving season” headlines that come right about when prices actually peak for the season.
Comments from the FED Chair all but guaranteed a 50 point rate increase at the May 4 meeting, and set the stage for even larger increases in the next 3 months. Looking at the CME’s Fedwatch tool that analysis activity in FED fund futures, a month ago, there was a 0% probability that the FED would raise the target rate to 2 percent by July, and today that probability is at 95%.
Reports from China suggest the country’s oil demand is dropping 20% in April due to the Shanghai lockdowns, which is actually kind of scary when you think if where prices might be had the world’s largest importer not been shutting down for the past month.
Meanwhile, another report based on satellite data of Russian oil fields gives another reminder that the country’s output is just now starting to decline more dramatically as the deals struck before the invasion of Ukraine are now running out. Many refiners in the country were already forced to slash rates or shut down completely due to a lack of outlets for their product, reducing total output by 15% or more since the start of the war.
A Dallas FED study this week took a closer look at the OPEC & Friends supply gap as the cartel has been unable to meet its oil output quota for several months. The report highlights how “…infrastructure issues and the difficulty of attracting sufficient investment to offset production declines at existing wells...[mean] many OPEC+ countries are unable to take advantage of the higher production quotas they will receive under the group’s agreement.”
If you’ve tried to buy a car in the past year you probably know it’s not just oil output that’s struggling with infrastructure issues and supply bottlenecks, a report this week highlights how numerous renewable energy projects are facing similar hurdles, creating a growing backlog of projects that are delayed, some of which will likely eventually fall by the wayside as a result.
A Reuters article this morning highlights the shifts US refiners are making to maximize diesel output when they would traditionally favor gasoline, and gives another reminder why inland refiners are having a much harder time finding a home for their production than coastal facilities.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.