The Start To Trading In 2020
RBOB gasoline futures are trying to lead the rest of the energy complex higher to start trading in 2020, but is struggling to regain the upward momentum that was lost in the last two trading sessions of 2019.
The early strength in gasoline will be good news for U.S. refiners if it’s able to hold, as they’re moving through what’s historically been the weakest time of the year for crack spreads. As the chart below shows, Gulf Coast refiners are starting this year in a better spot than they did 2019, even before this morning’s gains.
The API was said to report another large draw in crude oil stocks last week, with U.S. inventories down by 7.8 million barrels, while gasoline stocks dropped by only 776k barrels, and distillate inventories increased by 2.8 million barrels. It’s a bit strange to see WTI trading in the red while refined products are both higher when those stats would suggest the opposite, but the inventory reports can be skewed lower by shippers trying to avoid year-end taxes, particularly in Texas, which may explain the relative weakness in WTI this morning. The EIA’s weekly inventory report is due out tomorrow.
The most recent flare-up in Iraq (which is actually more of a threat of violence with Iran) seems to have simmered down for now. While oil production facilities were the target of protests, it doesn’t appear that the events caused any disruption to supply.
Meanwhile, Saudi Arabia and Kuwait have come to terms to restart oil production in the “neutral zone” border area between the two countries, that’s been shuttered for nearly five years due to disputes over ownership rights. It’s estimated that agreement could bring another 500,000 barrels/day of production online by the end of the year.
Click here to download a PDF of today's TACenergy Market Talk.
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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.