Petroleum Futures Catch Their Breath
It’s a quiet start to end the week with petroleum futures catching their breath after a breakout rally. Most contracts reached nine month highs in Thursday’s session, finally erasing all of the record-setting losses that took place this spring. For WTI, Brent and ULSD, barring a large selloff today, this will mark a sixth consecutive week of gains that have added roughly 40% to prices since the overnight lows set on November 1.
There’s not much news to drive the price action this morning. We will get to see OPEC’s monthly oil report Monday, and the IEA’s on Tuesday, but just as we saw from the EIA’s report this week, any forecasts are subject to elevated levels of uncertainty due to the unknowns surrounding COVID. For now, it seems that the energy bulls are content to climb the “Wall of Worry” and shrug off the slowdown in demand and building inventories that are taking place across most of the U.S.
Although the correlation between currency movements and energy prices has been relatively weak for some time, the threat of a “No Deal” Brexit seems to be creating some negative sentiment that’s spilling over into equity markets this morning, and may be contributing to the cautious start for petroleum futures as well.
From a technical perspective, there’s still room to run on the weekly charts. The March highs appear to be the next target on the weekly charts that would add roughly $3/barrel to crude and about a dime to refined products. The rally has moved several shorter term indicators into overbought territory, meaning we’re due for at least a short term correction in the next week or so.
A couple interesting reads from the WSJ this morning:
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.