Pivotal Week For Price Action
It’s another choppy start to trading for the week as energy futures rode a roller-coaster overnight and have left the complex with mixed results in the early going.
Prices moved higher just after midnight following reports that Saudi Arabia would make additional output cuts, but gave up those gains in the early morning trading, only to rally a second time right at 8 a.m. Eastern. It’s not yet clear what drove the second buying spree that pushed oil up one dollar/barrel and products up two cents/gallon in just a couple of minutes, as the timing doesn’t fit the Saudi story or the latest Iranian missile debacle, and equities are still holding in negative territory for the day.
This appears to be a pivotal week for price action as WTI, Brent and ULSD all look like they could have lots of room to move higher on the charts, IF they can break above their May highs. Meanwhile, RBOB gasoline has already broken through to new highs this morning, and looks like it could have 30 more cents of upside in the next few weeks, appearing to be the most bullish of the energy contracts as driving is suddenly once again in style. Both ULSD and RBOB contracts are flashing over-bought warning signs after two weeks of strong gains, so a sharp sell-off can’t be ruled out despite the optimism on many fronts. This technical test seems to mirror the big what-ifs fundamentally impacting energy markets, primarily surrounding whether or not states are reopening too soon.
Baker Hughes reported 33 more oil rigs were taken offline in the U.S. last week. The weekly drop moved the total oil rig count to its lowest level since 2009, and the combined oil and gas count to its lowest level on record in the 32+ years of data available.
Money managers continue to add modestly to net length in both WTI and Brent, although WTI’s increase was driven by new long positions being added, while Brent’s was mainly due to shorts positions being liquidated. Although the WTI net length held by large speculators is in the middle of its five-year seasonal range, that combined bet on higher prices is now at its largest level in the past year. The managed money category of trader hasn’t seen much change in refined product holdings over the past month with diesel futures holding slightly in net-short territory, while RBOB sees below average net length.
As more data comes to light on the WTI price crash on April 20, it’s becoming more clear that there were numerous traders, and brokerages, involved that did not know what they were doing.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe 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.