Oil Traders Pointing To Economic Measures And Divining A Drop In Oil Demand
Gasoline futures continue sliding this morning, dropping over 2% so far in pre-market trading, leading the energy complex lower. The prompt month RBOB contract started its bearish trendline Monday of last week and has only seen three days of slight gains since. On the charts, this morning’s price action has been buoyed by its 50-day moving average and if that support level is broken, a test of the 100-day MA at the $2.65 level will seem imminent.
Dismal PMI (Purchasing Managers’ Index) figures from some of the world’s largest producers is being blamed for today’s bearish sentiment in energy markets. The index, used to measure a country’s manufacturing productivity, dropped for a third straight week in Japan, and fell more than expected for European countries. With not a lot else going on this morning, oil traders are pointing to these economic measures and divining a drop in oil demand.
Certainly not abating the bearish sentiment, the EIA highlighted their estimate for an increase in oil production for 2023-2024 that they originally published earlier this month in their Short Term Energy Outlook. The Agency attributes the anticipated growth to an increase oil well productivity, particularly in the Permian Basin. Counter to today’s headlines, lower global inventories and generally higher prices are what the EIA foresees for the next couple of years.
Tropical Storm Harold made landfall on South Padre Island yesterday, located about 40 miles south of Corpus Christi. Although not much has come from hurricane activity so far this year, how rapidly the Atlantic basin produced five major storms in the span of a week is sounding the klaxon that more is to come.
The American Petroleum Institute published their US energy inventory estimates yesterday afternoon with the most notable of the headline values being a ~2.4-million-barrel drop in crude oil stockpiles. Gasoline stocks was the only builder, adding 1.9 million barrels last week while distillates stayed in the background, dropping 150,000 barrels. The official report published by the Department of Energy is due out at its normal time this morning (9:30 CDT).
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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.