Oil Prices Slide Lower As Banking Crisis Continues, Refined Products Show Relative Strength

Market TalkTuesday, Mar 14 2023
Pivotal Week For Price Action

Oil prices are sliding lower to start Tuesday’s action with headlines blaming the banking crisis for the move even while banking stocks are rallying to start the day. Refined product prices have found relative strength compared to crude oil prices following a few bullish elements for both supply and demand globally. 

Strikes at French refineries are continuing for a 7th day, and several are now reaching a tipping point as storage tanks have reached capacity even while operating at minimal levels.  That means the striking workers will either need to allow some products to flow – as they’ve done in a few cases so far – or force the plants to shut down their operating units. Note that the protestors have also shut in production at a Renewable Diesel (which is known as Hydrotreated Vegetable Oil, or HVO, in Europe) refinery, which suggests pension reform matters more than saving the planet.

Chinese diesel exports are reportedly dropping rapidly as increased domestic demand as the country reopens is keeping more barrels at home. 

The storm sweeping much of the East Coast, after the winter that wasn’t, seems to be contributing to the relative strength in ULSD so far this week, as we’re seeing calendar and prompt NYH basis spreads rally as there may be one last shot of heating demand before spring takes hold, and deliveries in and around the harbor may be delayed by high winds.

The February CPI report showed inflation continues to hang on, with prices rising .4% for the month and 6% for the year, both in line with several published estimates. The index without food and energy prices included was up .5% on the month as costs for housing increased more than other items. The drop in natural gas and diesel prices were key contributors to a drop in energy costs, which helped to limit the increases in food and other services. Both equity and energy prices dipped in the first minute after the report was released but quickly recovered as this report doesn’t seem to offer enough to change anything that the FED might do to either combat inflation or soothe the fears in the banking industry.

The CME’s Fedwatch tool shows how rapidly bets on treasury rates have changed this week, with nearly 100% odds that the FED would actually be forced to make a rate cut by the July meeting yesterday, after a 0% probability being priced in a week ago. Already this morning odds of a rate cut have been cut in half from yesterday’s levels, which combined with the recovery in bank stock prices so far today suggests that markets may already be calming down. Remember that the amount of money flowing through treasury and equity markets is many times larger than the funds flowing through energy futures, so it doesn’t take much to flow into or out of our market to have an outsized influence on prices. 

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Market Talk Update 03.14.2023

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Pivotal Week For Price Action
Market TalkMonday, Oct 2 2023

Gasoline 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.

Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.