Petroleum Futures Higher After An Afternoon Sell-Off In Equity Markets Thursday
The bulls are at it again, pushing petroleum futures higher after an afternoon sell-off in equity markets Thursday seemed to temporarily limit the upward momentum.
ULSD futures are trading higher for a 10th consecutive session, and the bulls hold an undefeated record for 2022 so far. The February contract has added 30 cents in those 10 sessions since the NYE selloff, and if that pace of increase continues, will put diesel prices somewhere around $8/gallon by the end of the year. When you look at it that way, the flashing “overbought” signals on the daily charts make more sense, showing that ULSD is begging for a pullback, but the weekly charts still suggest now that $2.60 was broken, there’s a good chance we’ll see an attempt to rally to the $2.80 range, which happened to be a price floor back in 2014 before prices collapsed.
Most physical diesel markets continue to be much less enthusiastic than futures, with basis values sliding and rack spreads vs spot markets holding well below break-even levels in many markets. The collapse in Midwestern ULSD spreads has opened up the theoretical arbitrage window to bring diesel out of the midcontinent towards the gulf & east coasts, but then again, that would require a truck (presumably with a driver) and roads that aren’t covered in snow or ice, none of which look like a likely option over the next few days.
Winter Storm Izzy is expected to bring heavy snow and ice to a large part of the country this weekend and an extended stretch of cold weather behind it goes a long way to explain why ULSD futures look strong while physical diesel across most of the country that doesn’t need diesel for heating or electricity generation looks weak.
For the most part, the storm is going to hit parts of the US that have winter every year and should not be an unusual event. The biggest concern (for now) is that parts of TN, GA and the Carolinas all could get covered in ice, and they simply aren’t equipped to deal with it. In years past when we’ve seen this type of event, there were numerous terminal closures due to frozen pipes and other damaged equipment just in time for a surge in diesel demand as electricity companies need to supplement their output to keep up with the surge in demand.
Reminder that Monday is MLK Jr. day, so spot markets in the US won’t be assessed and banks will be closed. That means most rack prices will carry through from tonight to Tuesday, and most industry participants will hope that futures don’t have a repeat of the Black Friday or NYE selloffs.
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.