The March Rally In Energy Prices Has Been Erased, With RBOB, WTI And Brent All Trading Lower This Morning
The March rally in energy prices has been erased, with RBOB, WTI and Brent all trading lower this morning than where they started the month. ULSD prices haven’t quite given up all of their gains for the month yet, but they have dropped $1.70 in less than a week, which apparently is a lot.
After weeks of supply fears dominating the discussion, demand declines are suddenly taking over as 50 million people were placed on lockdown in China over the past 2 days, as the country deals with its worst COVID outbreak since the start of the pandemic 2 years ago.
Unlike two years ago however, a lockdown like this is viewed as another possible inflation driver as factories are forced to close, adding another challenge to the beleaguered global supply network, which means central banks (probably) won’t be coming to the rescue this time. That reality seems to have equity and bond markets nervous, with 10 year treasuries moving near a 3 year high and the yield curve tightening again ahead of the FOMC meeting.
Reports of progress in peace talks in Ukraine are also getting credit any time the market drops, even though there seem to be plenty of other headlines suggesting little progress is being made, which will come in handy whenever prices rally again.
Likewise, reports of new negotiations between oil producing countries like Saudi Arabia and Venezuela, and consuming countries like China and the US are easy headlines to pin a move lower, and then to blame if they fail and prices rally.
From a chart perspective, refined products survived their first test of the weekly trend lines that have been in place since early December, which could give the bulls a reason to buy this very large dip.
Speaking of buyers: You may not even know there’s a pullback happening if you live on the West Coast as CARBOB basis values have spiked this week, offsetting the drop in RBOB futures. While Midwestern fuel prices continue to trail their coastal counterparts in most cases, we’ve seen a rally of 20 cents or more for both diesel and gasoline differentials in Chicago and Group 3 trading over the past week as calendar spreads for futures have come back closer to reality, and the winter demand doldrums look to be in the rearview mirror.
OPEC’s monthly report and the API weekly report are both due out later today, while the DOE and FOMC announcement will be out tomorrow.
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.