Risk-Off Sentiment, Economic Concerns Push Gasoline Futures Lower
The selloff continued for energy contracts overnight before buyers stepped in around 7:45 to push WTI and ULSD prices to breakeven levels. There’s a feel of risk-off sentiment in energy and equity markets the past couple of days as the FED continues to explain its plan to continue pushing interest rates higher after a pause, while other major markets are flashing signs of economic slowdown.
Gasoline prices were leading the move lower this morning, down more than a nickel at one point, aided by a collapse in ethanol RIN values that’s taking some pressure off of refinery cracks spreads that need to be high enough to offset the cost of the RFS.
D6 RIN values were climbing Tuesday, trading back up to $1.46 for 2023 vintage before a Reuters report in the afternoon that suggested today’s long-delayed EPA ruling on the RFS volume thresholds would increase total biofuel quotas, but lower the ethanol volumes from earlier proposals. Sellers immediately emerged in the wake of that report, with trades of $1.39 late Tuesday (after-market assessors were done for the day) and already this morning, trades below $1.30 have been heard, marking the lowest levels since April 2022. If the reported change is true, it would seem to be a slap in the face to the ethanol lobbying group that just last week agreed to allow the EPA to delay its final ruling to today despite a previous court-ordered deadline of June 14th.
Tropical Storm Bret continues to churn towards the Caribbean, but has been downgraded in forecasts which now suggest the storm won’t reach hurricane strength as was predicted earlier. The weaker strength also means the storm is expected to stay on the southern edge of its range, which keeps it moving west towards Central America and not hooking north towards the US.
The storm system chasing Bret is given 80% odds of developing over the next week by the NHC, and this system is projected to hook north as it moves West, making it a potential threat to the East Coast, although many early models suggest this system will stay out to sea as it moves north.
Both Tulsa OK loading racks resumed operations Tuesday after storms knocked out power to a large area around the city earlier in the week. The Holly refinery is also reported to be attempting restart, which will alleviate the concerns of fuel shortages if it can manage to get back online safely in the next couple of days.
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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.
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.