The Bulls Took Back Control Of Energy Futures
The bulls took back control of energy futures Thursday, with refined products bouncing 10 cents off of their early morning lows, and trading up to within a few cents of the 7 year highs set earlier in the week overnight. That bounce is a reminder that supply shortages rarely have short term solutions, and the squeeze we’re seeing in many parts of the world may well get worse this winter before it gets better. From a technical perspective, all that matters short term is whether or not the highs set earlier this week can hold resistance. If they break, there’s room to run on the charts, and we could soon be talking about crude pushing the $90/barrel mark, and products adding another 20-30 cents/gallon.
The good news is natural Gas prices around the world have pulled back sharply from record highs this week. The not so good news, is that pullback came after Russia suggested it can help alleviate the shortages…for a nominal fee of course, and as China has ordered coal miners to increase output. When you stop and think about it, it’s actually pretty wild that in major producing nations (like the US & Russia) natural gas is still being burned off because there’s more supply than capacity to get that fuel to the market, while other parts of the world are struggling to keep the lights on because they don’t have enough supply.
Speaking of which, the IEA published a report suggesting that methane emissions from flaring and leaks is the low hanging fruit of the climate agenda, something that can make a meaningful improvement on emissions, in a short amount of time and in a cost effective manner.
Add another supply bottleneck to the growing list: Spot ethanol prices in the New York Harbor have surged to $2.90/gallon this week as logistical bottlenecks continue to hamper the movement of mandated fuels. Meanwhile, it was another busy day in the RIN arena, with D6 values dropping 12 cents in the early morning, only to bounce 10 cents by the afternoon. Then again, considering RBOB prices also bounced by 10 cents from their overnight lows, the RIN movement seems relatively tame.
That doesn’t make cents: The shutdown of Kinder Morgan’s pipeline FKA Plantation finally made national news Thursday as restart efforts were delayed until the weekend. The reporter(s) seemed to get their dollars and cents mixed up however, when suggesting that NYH gasoline prices were up 50 cents on the day, trading $7.50/gallon over futures, implying outright prices nearing $10/gallon. Don’t rush out and fill up your Rubbermaid totes with gasoline! In reality, NYH spots are trading 6-7 cents/gallon over futures and those diffs were up 50 points. The shutdown has barely caused a ripple in basis markets, nor has it caused space on Colonial to start trading at a positive value, suggesting traders expect supplies will return to normal in a few days. Don’t blame the reporters however, with most of the world focused on a shortage of (natural) gas supplies, it’s easy to get the two mixed up.
Click here to download a PDF of today's TACenergy Market Talk.
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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.