Q4 Kicks Off With Modest Gains
The 4th quarter is kicking off with modest gains for energy prices, after they ended the third quarter with heavy losses – despite the attacks in Saudi Arabia that took more than 5% of the world’s oil production capacity offline. The early bounce this morning may have more to do with technical factors (buyers stepping into an oversold market, or funds reallocating capital to start a new quarter) than it does fundamental, as the Saudis are claiming their output is now fully restored.
When will the bubble burst on West Coast gasoline prices? Monday saw another casual 15 cent price increase for CARBOB prices that are currently trading about $1.30/gallon above NYMEX futures, and $1.20 above the next most expensive market east of the Rockies. The price spike is bad news for drivers in the area that are now dealing with prices above $4/gallon, but may open up a window for retailers once the inevitable price collapse takes place.
Ethanol prices have continued their rally, surging more than 25 cents in the past week, with the latest move higher coming on the heels of a bullish USDA crop report. Ethanol RINs have not fared nearly as well, pulling back sharply in the past week as it becomes clear the latest rumors about changes to the RFS do not appear to be coming to fruition with little things like impeachment taking center stage in congress.
Want another reason why oil prices are no higher now than they were before the attacks in Saudi Arabia? The EIA published a note this morning highlighting production in non-OPEC nations, that are seeing historically low outages.
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.