Refined Product Prices Have Dropped To Their Lowest Levels In 4 Months As Fears Of A Slowing Economy
Refined product prices have dropped to their lowest levels in 4 months as fears of a slowing economy, and new tensions between the world’s two biggest economies, seem to be weighing heavily on various assets. The big drops this week have put the energy complex on the verge of a technical breakdown, but so far buyers continue to buy the dip, and keeping the chance of a continued sideways summer trading pattern intact.
Monday’s ISM Manufacturing survey got some of the credit for the big selloff in energy prices. Even though the survey showed that manufacturing in the US continued to grow, the pace was the slowest in 2 years, despite strong growth in energy production. The survey also suggested that post pandemic inventory restocking was winding down, which is likely to weigh on purchasing in the coming months. Right on cue, a Reuters article this morning notes that the country’s largest warehouse market is running out of room as consumer purchasing slows and inventories swell.
Retail fuel prices are set to continue dropping, and will soon be $1/gallon less than their June peak, which will be a key component to inflation readings decreasing. Perhaps the big question for the US economy, and energy prices for the rest of the year, is whether or not that drop in retail prices is enough to keep consumers from tightening their purse strings any further.
Diesel futures are potentially setting up a bearish descending triangle pattern on the charts, with a floor just below the $3.30 mark that could lead to a drop below $3 in the next few weeks should it break. Given the lack of diesel supplies globally, it’s hard to imagine this chart pattern could trump fundamentals, but relatively weak basis values across large parts of the US suggest we’re seeing at least a temporary reprieve in most of the inventory shortages, now we’ll just have to see if that lasts through the hurricane and harvest seasons.
The price to lease space on Colonial pipeline’s main gasoline line reached a 7.5 high this week as shippers race to take advantage of the huge premiums for gasoline in NY Harbor vs the US Gulf Coast. These premiums are yet another reminder of how the world’s supply and transportation network has been upended in recent months, after years of Colonial’s main line being unallocated and space trading for negative values since Europe was able to supply the excess gasoline consumed on the US East Coast. The forward price curve suggests the double digit premiums for line space will be short lived, but values could stay positive through the winter as that’s typically the strongest time of year as producers need to find new homes for their gasoline.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllGasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
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.