Panic Selling Grips Markets Worldwide
WTI is taking its turn leading the energy markets lower this week, dropping another 15 percent since Monday’s close, and reaching a new 18 year low overnight as the panic selling continues to grip markets around the world.
On a percentage basis, this would be the worst month ever (down 45% so far in March) for WTI futures, which have been trading for nearly 40 years. On a $/barrel basis, this $20/barrel drop is still a long way away from the October 2008 record of a $33/barrel decline.
Gasoline futures were shrugging off the 8 percent drop in crude oil overnight , trading up three cents/gallon after the API reported a seven million barrel decline in U.S. gasoline inventories last week, but have succumbed to the bearish pressure and are now trading modestly lower. Diesel stocks also had a large draw of 3.6 million barrels in the industry estimate, while crude stocks had a small decline of 421,000 barrels. The EIA’s weekly report is due out at its normal time.
While they have a much shorter history than WTI, and a small fraction of the trading volume of their petroleum cousins, ethanol futures have also dropped to a record low this week at $0.94/gallon. Given that fuel ethanol is around 198 proof alcohol, perhaps the excess inventory may find a new life in the hot market for sanitizing products. No word yet on Twitter if that is actually a viable solution to the virus.
Many physical fuel markets around the country are seeing basis values drop this week as traders are hesitant to buy anything with so much uncertainty around demand. The drop in both calendar and basis spreads is beginning to drive up premiums for storage options around the world, whether they be in major pipeline systems, inland terminals, or the vessels at sea turning into floating storage.
Another notable phenomenon this week, it’s not just physical demand that is trending lower. Trading volumes in the major petroleum contracts have been dropping daily since the March 9 price plunge. This could be due to the extreme volatility forcing some trading programs to the sidelines to avoid being run-over. That lack of volume is a technical signal of low conviction which can be a sign that this trend is approaching its end. That said, low volume can also mean greater volatility since anyone needing to trade a large position will create bigger price movements than normal, so don’t expect these markets to calm down for a while.
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.