The Energy Complex Continues To Bounce Back And Forth This Week And Have A Mixed Outlook Going Forward
The energy complex continues to bounce back and forth this week and have a mixed outlook going forward, with Crude Oil falling well below its weekly trend-line, while refined products have managed to stay above theirs.
The technical breakdown in crude, while refined products have managed to hold above their trend lines has sent crack spreads to fresh record highs in some areas, with even the low end estimates putting margins for plants north of $1/gallon. If you think that kind of margin isn’t enough incentive for a refiner to pull out all the stops to run full out, you’ve probably never met anyone in the refining business.
Speaking of which, we didn’t get a DOE status report this week due to a systems issue, but we did get the agency’s annual refinery capacity report. That report highlighted the decline in operable capacity over the past two years that marks the most severe decline since the early 80s and has led to all sorts of straw grasping to try and solve the problem of high fuel prices in an election year.
The EIA this morning published a note on Global Crude Oil production capacity, showing both the relatively large excess in place today, and predicting a drop in that amount as producers race to bring output back online, something that’s proven difficult this year. That excess crude production capacity goes a long way to explaining why we saw oil prices top out well below their 2008 highs (so far) while the lack of refinery capacity goes a long way to explain why refined products have smashed their previous records.
The National Hurricane Center increased the odds of development for a system churning across the Atlantic to 60% yesterday, but that system still may not pose a threat to the US unless it’s able to shift north before approaching South America. The 2022 season is still expected to be a busy one for hurricanes, even though it’s off to a slow start vs the last two years.
RIN Prices continue to slide this week, and have now given back all of the gains made earlier in June when the EPA revised their blending requirements for refiners. Plummeting grain and palm oil prices are getting credit for the slide in RIN and ethanol prices.
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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.