The Question Roiling Equity Markets
It’s a weak start to end a strong week for energy prices that have had plenty of back and forth action from the storms swirling around Louisiana and Washington D.C.
Delta looks like it should have relatively minor impacts on supply infrastructure along the gulf coast. Potentially, there should be no noticeable impact on the adjacent markets, as it’s taking a favorable track while it heads towards landfall tonight.
Stimulus or not continues to be the question roiling equity markets this week with a flurry of mixed signals from both the legislative and executive branches of government, and many are expecting more volatility due to uncertainty surrounding the election.
After all the choppiness in the past few weeks, refined product prices find themselves essentially in the middle of the sideways trading range that’s held them since June, leaving the technical outlook neutral near term, while longer term charts still hint at a larger move lower if prices can’t sustain a rally soon.
Delta is currently a Category 3 storm with winds around 120 miles an hour, and is expected to make landfall east of Lake Charles later tonight with winds around 100 miles an hour. It looks like Delta will hit less than 20 miles from where Laura made landfall, with numerous homes and businesses still not repaired from that storm. The good news is Delta is not nearly as powerful as Laura (100 mph vs. 150 mph for Laura) and Lake Charles looks like it will stay on the west side of the storm instead of taking a direct hit like it did six weeks ago. However Delta is a very large storm, so storm surge, tornados and power outages are expected to threaten almost all of the entire Louisiana coast line.
The current path of the storm would essentially thread the needle by hitting right in the middle of a 350 mile stretch of coastline. This is home to 27 refineries, which accounts for 40% of total U.S. capacity. The eye of the storm would not come within 30 miles of any one of those plants. Most of the facilities in Lake Charles and Pt. Arthur aren’t betting that will mean no impact on operations however, with many shutting units until the storm passes, as power outages are still a major concern and have the potential to be much more widespread than the storm itself.
OPEC’s World Oil Outlook highlighted the numerous challenges faced by the industry in the coming years due to COVID and the accelerated push towards renewables in many areas, but still estimates that oil will continue to be the largest piece of the global energy puzzle through 2045. The report also suggests that global oil consumption will continue to grow during the next 25 year stretch, although developed countries like the U.S. may have already seen their peak oil demand, and that a wave of oil refinery consolidation is required to balance the market.
A handful of other highlights from the WOO:
Oil demand growth is expected to recover during the medium-term, linked to demand ‘catching up,' especially in the sectors affected the most by restrictions during the COVID-19 crisis. These include the aviation, road transport and industry sectors.
U.S. tight oil will grow until around 2030, but not as much as previously expected
Crude distillation capacity is expected to increase by 15.6 mb/d until 2045, with a significant slowdown in the rate of required additions
Natural gas will be the fastest-growing fossil fuel between 2019 and 2045
‘Other renewables’ [Solar, Wind, Geothermal] retain the position of fastest growing source of energy in both relative and absolute terms
This article on the concerns over cooking and heating fuel shortages due to the closure of Newfoundland’s only refinery offers a glimpse of the numerous logistical headaches that will come from the rash of closures taking place around the world. In short, there’s still ample supply around the world, but the distribution network will take years to adjust.
One of the more popular of the numerous “clean” energy sources that are making their way through the news lately is Hydrogen. A WSJ article Thursday noted that the biggest challenge facing this alternative fuel is it requires lots of fossil fuels to produce.
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.