Rapid Pace Of Price Recovery

Market TalkMonday, Jun 8 2020
Week 21 - US DOE Inventory Recap

Energy futures were rallying again overnight as OPEC & friends made a new deal this weekend, and a Tropical Storm passed over a critical energy supply hub. Most contracts have given up their gains this morning, however, as concerns mount that rapid pace of the price recovery could mean production may return faster than demand can heal.

WTI broke the $40 mark for the first time in more than six weeks overnight. Of course when WTI hit $40 six weeks ago, there was a negative sign in front of it. The last time WTI was at a positive $40, was Friday, March 6, the day before the Oil Price War started, so it’s fitting the return comes the day after Saudi Arabia and Russia found themselves on the same team again.

Baker Hughes reported another 16 oil rigs were taken offline last week, bringing the total oil rig count to a new 10-year low, and the combined oil and gas count to yet another all-time low. It’s worth noting that unlike most weeks where the Permian basin accounted for the majority of the rig count reduction, this week it was the Eagle Ford that declined the most, with nine rigs taken offline, which was nearly half of the remaining number in that basin. There will be much debate on how soon we may see a recovery in production now that prices are back near the $40 level, although it’s reasonable to think we won’t see meaningful additions in drilling unless prices can get above $40 and stay there for a while. It’s important to remember that with more than 7,000 DUC wells available, U.S. producers can ramp up output even without increasing the rig count.

Cristobal made landfall in Louisiana as a Tropical Storm Sunday, and had shifted far enough east to make things uncomfortable for the refiners and ports along the Mississippi river near New Orleans. Ports have been shut since Saturday, and the damage assessments are underway, but so far it does not appear that there was any notable infrastructure damage to the supply network.

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Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action