Prices Are Taking A Breather This Morning As Prices Continue To Slog Through Their Sideways Summer Trading
Gasoline prices led the energy complex higher Wednesday as we approach the holiday weekend with record setting travel volumes expected in the US. Prices are taking a breather this morning as prices continue to slog through their sideways summer trading pattern with no clear direction on the charts, and plenty of fundamental discord to keep traders guessing.
The US commerce department revised its Q1 GDP figures up to 2% growth from earlier estimates of 1.3%, a major correction for that report, primarily reflecting stronger export activity (thanks oil) and consumer spending.
While a 10-million-barrel drop in oil inventories grabbed the headlines yesterday, perhaps the most bullish numbers from the DOE’s weekly report was strong export figures that show crude oil shipments out of the US at their 2nd highest level ever, and diesel shipments at their highest level of the year. Propane and propylene shipments also surged to a new record high, which certainly suggests that there are plenty of international buyers for US petroleum products, despite so many warnings of a looming recession.
While the SPR continues to drop to multi-decade low levels, despite the DOE’s proud announcements of purchases to refill the reserve, the Cushing OK hub has stockpiles steadily growing and reaching a 2-year high last week.
Average retail diesel prices are down almost $2/gallon from year-ago levels as the supply crunch so feared over the winter never materialized. PADD 1 diesel stocks however have dropped below year-ago levels this week for the first time since January, despite another very weak demand estimate last week that puts total US diesel consumption below the COVID summer of 2020 levels. Gulf Coast diesel supplies are ample however, holding near their 5-month average, which is putting downward pressure on forward basis values.
Today’s interesting read: Are Indian refiners reaching the limits of their Russian oil binge?
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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.
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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.