Set For New Record Highs?
Energy futures are hovering around two year highs this morning, despite minor losses in the early going. WTI reached a high of $70 overnight, its highest trade since October 2018.
Set for new record highs? RIN prices have been trading in a narrow range since setting record highs in May. Corn and Soybean futures are both starting the week with strong gains however, which may encourage buyers to push RIN values to make another test of the $2 mark. They may need some help from ethanol markets which have pulled back nearly 30 cents from their May highs. Meanwhile, the industry seems to have abandoned the CBOT ethanol futures contract based on the (lack of) volume chart below, making getting a read on forward values more challenging.
Tug of war: While China is attempting to battle the commodity price boom, and push prices lower, Iran’s shadow war seems to be coming out of the shadows and adding a risk premium to oil prices. Both of these stories may continue influencing prices daily through the summer, although it doesn’t seem that either one will change the global supply/demand balance longer term.
It was another mixed week for large speculators in energy contracts. The CFTC showed that the money manager class of trader increased the net length held in WTI, Brent and gasoil contracts, while reducing length in ULSD and RBOB. The drop in ULSD snapped an eight week streak of consecutive increases. It’s worth noting that the profit taking in ULSD happened at the same time that its European counterpart gasoil saw its net length jump to another two year high after a small decline last week.
Baker Hughes reported that the U.S. oil rig count held steady last week. The Granite Wash basin did see a decline of two rigs, while the Eagle Ford and Woodford basins each added one on the week.
The IEA’s World Energy Investment report forecasts a recovery in spending that will largely offset the impacts of the pandemic this year. The charts below from that report show how that investment is broken out, with renewable electricity investments expected to outpace dollars spent in oil production for this first time this year. The report also notes that while the pressure to consolidate refining activities is strong across much of the world, new investment in Asia and the Middle East will increase global refining capacity by roughly five million barrels/day over the next five years.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
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Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
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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.