Shaky Financial Markets Winning The War?
Weak equity markets squared off with some bullish inventory data for control of the energy market price action Wednesday, and while the good fundamental news won the day, a weak start to Thursday’s action suggests that shaky financial markets may end up winning the war this fall.
Inventory drawdowns and strengthening demand in the weekly DOE report helped the energy complex turn small losses into modest gains on the day. U.S. gasoline stocks fell below year-on-year levels for the first time since COVID shutdowns started pummeling demand six months ago, in what many see as a major victory for refiners. Naysayers will point to a large drop in gasoline imports due to Atlantic storm activity slowing the flow of gasoline from Europe, and the upcoming seasonal demand slowdown as reasons this relatively balanced supply won’t last.
Diesel demand shot up 30% last week according to the DOE’s estimate, which helped inventories pull back from the brink of an all-time high. Export activity for products and crude oil remained steady, suggesting the port disruptions from the multiple storms along the gulf coast has had minimal impact on flows so far.
California’s governor took a page straight out of Atlas Shrugged when he signed an executive order to phase out the sale of gasoline-powered vehicles in the state by 2035. The statement also encouraged drivers to switch to electric cars saying, “Our cars shouldn't make wildfires worse.”
Perhaps he forgot about the thousands of California wildfires caused by electric transmission lines, or how that electricity is generated in the first place.
This is the same person who less than a year ago called for an investigation into why the state’s gasoline was so much more expensive than the rest of the country, failing to recognize the impact of more than $1/gallon in state taxes and fees that set the state apart from most of the country, or the boutique fuel grades mandated by CARB and other policies that continue to force refiners in the state to shut down.
Total is the latest refiner to announce plans to convert one of its facilities from crude oil to biofuels over the next two years. The notice also highlights the growing interest in bio/renewable plastics, which will become a more mainstream idea as the momentum for carbon reduction builds. The refining industry was already expected to produce more plastics than transportation fuels in the coming decades, so the pressure to find renewable options on that side of the output will be strong.
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.