The Bulls Look Like They’ve Regained Control Of The Energy Markets Temporarily
The bulls look like they’ve regained control of the energy markets temporarily, with ULSD once again leading the push higher for what will be a 9th straight week of gains if prices can hold above $3.16 today. June 23rd marked the last week when ULSD finished lower, settling at $2.4071 that Friday, vs $3.2005 this morning. Anyone looking for a reason that this might finally be the end of diesel’s summer rally may point to the fact that despite the higher weekly settlements, ULSD prices have not yet broken the high trade of $3.2310 set August 10th.
RBOB futures are up almost a dime from Wednesday’s low but still need to add a couple more cents if they’re to avoid their 2nd straight weekly decline. There are just 5 trading days left in the September RBOB contract which marks the last summer grade spec contract of the year and with October RBOB trading 20 cents lower, this may be the bulls last chance to stage a meaningful run at $3 this year.
The strength in energy futures came despite a big reversal lower in US equity markets Thursday just in time for the FED Chairman’s speech this morning that many think will show that the central bank is still not done with its inflation fighting rate increases. After moving in lockstep earlier this summer, the correlation between daily price moves in energy and equity markets has gone negative in the past 2 weeks.
The NHC is still tracking 4 storm systems in the Atlantic this week, although none look to be a direct threat to the US. Tropical Storm Franklin is expected to reach Category 2 hurricane status next week as it moves north a few hundred miles off the East Coast, which will create some high seas and dangerous currents, but should not be a major factor on supply or demand. The other 3 systems are all given low (20-30%) odds of being named.
Startup troubles: The Cenovus (FKA Husky) refinery in Superior Wisconsin was evacuated for a 2nd straight day Thursday after a leak. No injuries or damage to the recently rebuilt facility were reported but it’s not helping the facilities reputation after it blew up 5 years ago and forced much of the town into an emergency evacuation to avoid toxic fumes.
Haven’t changed their mind: Despite selling multiple refineries in the US in the past few years, just before US refineries had record profits, Shell seems committed to its plans to reduce traditional refining capacity with reports that it will soon be offloading its 237,000 barrel/day plant in Singapore. With numerous new refineries trying to take control of the Asian markets, and a military looking to flex its muscle in the South China Sea, Sinopec’s interest in the facility will no doubt be a topic of much debate in the weeks to come.
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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.