The Rally In Energy Prices Is Facing Its Biggest Test Of The Past 2 Months
The rally in energy prices is facing its biggest test of the past 2 months, with the price action over the next few days looking to be pivotal for the weeks ahead. NYMEX futures survived their biggest daily selloff since the Black Friday Omicron meltdown Tuesday, and managed to hold above their bullish trend-lines on the weekly charts, which keeps the door open for another rally in the next few weeks if prices can sustain near current levels. Then again, there are still signs that the selling may not be over, as we saw a heavy wave of selling around 7am central that pushed ULSD down 2.5 cents and RBOB more than a penny on the day, but those losses only lasted around 10 minutes before recovering to the overnight range.
The API reported inventory draws across the board last week in its Tuesday afternoon report, which seemed to temporarily help the market find a bid, but that proved short-lived as the selling picked up again overnight. The EIA’s weekly report is due out at its normal time this morning. We are near the point where gasoline inventories usually peak out before drawing down ahead of the spring RVP transition, and with reports of heavy buying ahead of last week’s winter storm, we could see stocks make the turn this week.
Diesel stocks are also likely to see further declines, even though ULSD calendar spreads continue to pull back, but calendar spreads remain in the steepest backwardation since 2008, when futures rallied north of $4/gallon in July before crashing to $1/gallon in December. John Kemp of Reuters is arguing this morning that diesel has become a key signal of inflation in the US, and tight supplies could continue to drive prices higher. Meanwhile, a Bloomberg article earlier this week highlighted that several commodities are seeing similar curves as supply chains struggle to match current demand.
The reports that progress in the Iran nuclear negotiations are driving the pullback in prices this week continue, even as Iran decided now was a good time to publicly display a new long range missile system which all but ensures that any agreement, if any is reached, will not be taken seriously.
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.