Petroleum Futures Are Set For Their Largest Weekly Gains Since August
Petroleum futures are set for their largest weekly gains since August, as prices move higher again to start Friday’s session after a modest reversal Thursday slide lower. Assuming there isn’t a major reversal later today, this week’s action would snap a 7 week losing streak for refined products, and move them out of the bear market territory they entered to start the month.
There is still more work to be done to break the downward sloping trend-lines which should create a pivotal test to end the week. Both RBOB and ULSD are just a penny or two away from breaking those trends that knocked 50-60 cents off of prices since peaking in October, but if they fail to sustain their momentum, there’s a strong case to be made that we could see another wave of selling soon.
Regional markets are already seeing some major moves lower this week despite the rally in futures, particularly in the case of diesel, where tight supplies in the Southwestern US and Ohio Valley are healing quickly as refineries come back online and pipeline schedules get back closer to normal.
Bye bye Backwardation? The forward curve charts below show the dramatic flattening of the futures price curves over the past month as the supply crunch has eased across most markets. Also note that the rally over the past week has been fairly steady over the next 3 years, which is consistent with the move higher in equity markets as Omicron fears are put on the back burner.
RGGI credits jumped to a record high this week, joining a strong rally in several credit markets, only to plummet Thursday after Virginia’s governor signaled his intent to pull the state out of the regional cap & trade program. We also recently saw Connecticut and Massachusetts pull back from the New England Transportation Climate Initiative program, as high energy prices prove to be a powerful political motivator.
Speaking of which, the Consumer Price Index for November was released this morning, and the annual inflation index reached its highest annual level in nearly 40 years at 6.8%. Energy prices ticked higher immediately following that report, which apparently makes sense since energy price gains account for much of that inflation. The inflation reading excluding food and energy was at 4.9%, which is “only” the highest since 2008. For those that remember 2008, or 1982, you can see why these inflation figures are troubling to many.
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.