Prices Pushed Through Technical Resistance
The spring breakout rally is on as WTI, Brent and RBOB have all pushed through to fresh 4 month highs owing to a handful of bullish-enough fundamental reports that have pushed prices through technical resistance.
If prices can hold near current levels, the door seems open for WTI to push above $60, Brent to move back above $70, and for RBOB gasoline to test the $2 mark in the next couple of weeks. ULSD futures remain the laggard even though they may have the strongest fundamental case of all the contracts with inventory levels below average across most US markets and the IMO spec change looming at year end.
Yesterday’s DOE inventory report helped get the rally moving as it confirmed the inventory draws for crude oil and gasoline stocks that the API had reported the day prior. OPEC’s monthly report did give some cautionary notes to the fundamentalists as it noted a slowdown in global economic activity, and coinciding reduction in oil demand growth. That said, so far this morning, the market seems to care more about OPEC’s production dropping for a 4th straight month, led by decreases in Saudi Arabia and Venezuela. The bears will note that without the unintentional reductions from Venezuela, the cartel’s cuts were much lower last month than previously forecast.
In addition to the DOE report, gasoline seemed to be aided in its rally by unconfirmed reports swirling through the rumor mill that the Bayway NJ refinery would once again be shutting an FCC unit that was down for maintenance in February for unplanned repairs. That downtime contributed to PADD 1 refinery runs reaching an 8 year low 2 weeks ago, and yesterday’s “news” helped push April futures further into backwardation, while holding basis values in the 9 cent discount range, compared to an 18 cent discount for winter-grade RBOB this time last year.
That refinery is also finding its way into the headlines this week for other reasons. A recent report shows that toxic emissions from the plant have been cut by more than 2/3s in the past 15 years, but some are still unhappy as the refinery accounts for around half of the state’s total emissions of certain chemicals.
Meanwhile, a first of its kind lawsuit is being allowed in Boston, as an environmental group is suing Exxon over claims its terminal facility in MA is not adequately protecting against the effects of climate change.
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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.
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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.