Stairs Up, Elevator Down For Energy And Equity Markets

It’s a case of stairs up, elevator down for energy and equity markets as a broad selloff overnight wiped out all of last week’s gains in just a few hours. It appears there’s a bit of “buy the rumor, sell the news” in today’s big drop as the long-awaited congressional stimulus package was finally passed over the weekend, but it came with strings attached – most notably some restrictions on the FED’s emergency lending capabilities.
The U.S. Dollar has had a strong rally as it appears the money printing press will now have to get more approval before cranking up going forward, which matters more to Wall Street bankers than the $600 checks being sent to lower-income earners elsewhere. The bright side of this phenomenon is it brings back one of our favorite news characters, the “Head-in-hands trader” who tends to make an appearance any time we get a big sell-off.
In addition, there’s a new strain of COVID reported in England, that has much of Europe and Canada restricting travel to and from the UK as a result. Fears that the new strain could offset progress made with the vaccines seems to be spooking markets, but some reports suggest that the vaccines are still likely to be effective against the new strain.
Given the huge run-up in process we’ve seen since Nov. 1, we could easily see another 10-15 cents of downside for refined products in a normal correction of that rally unless buyers are able to get prices back above the upward sloping trend lines soon. That said, we saw similar rounds of steady buying capped off by a large sell-off in June, August and September, and each time the market recovered the losses within a week or two.
Money managers continued to add net-length across the petroleum contracts last week, enjoying the seventh straight week of gains. Their reaction to this selloff, the largest in nearly 2 months, may make a big difference in whether or not this ends up being just a correction, or the end of the line for the rally.
Baker Hughes reported a net increase of 5 oil rigs drilling in the U.S. last week. The Permian basin increased by 5, while the Eagle Ford, DJ and Woodford basins all decreased by 1, which were offset by gains in other smaller plays.
The increased drilling activity is also registering on the Dallas FED’s Texas jobs forecast, as one of several positive leading indicators suggesting the employment recovery from the spring COVID collapse should continue through December.
Add another refinery to the scrap heap: Portugal’s oil & gas company announced it would shutter the smaller of its two refineries (which has roughly 100mb/day capacity) permanently due to the impact of COVID, and the regulatory environment.
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
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.