Optimism Abundant As Prices Reach New Levels
Optimism is abundant this week as energy and equity prices reach their highest levels in over two months. Demand recovery around the globe is the hot topic as countries and states continue to relax restrictions, and reports suggest China’s consumption is almost back to pre-pandemic levels.
Apple’s mobility trend data, based on demand for its mapping software shows that U.S. driving demand is now down less than 20 percent from pre-COVID-19 conditions, while public transit demand is still off some 70 percent.
That divergence in modes of transportation highlights what may become a major challenge for refiners in the back half of the year. Gasoline consumption looks like it will continue moving higher, but diesel demand in many forms, from planes, buses, trains, oil rigs and 18-wheelers looks like it may take much longer to recover. To make more gasoline, refiners will be challenged to find a home for that extra diesel, as storage tanks have filled up rapidly in the past five weeks.
What a difference a month makes. June WTI futures expire today, and that contract is trading at a premium to July. Backwardation in the forward curve, even if it’s only for one expiring contract, seemed impossible back on April 20 when the May WTI contract plunged to -$40.
Supreme Refusal: The supreme court denied reviewing two cases this week that have direct impact on refiners. The first case was attempting to shift the point of obligation under the Renewable Fuel Standard from refiners to blenders. The other was an appeal by Venezuela to prevent the sale of Citgo.
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.