Tidal Wave Of Selling Knocked 5% Off Petroleum Contracts
If you like lower prices there’s plenty to be thankful for this week, after a tidal wave of selling Tuesday knocked more than 5% off of most petroleum contracts, pushing prices to their lowest levels of the year. Unfortunately for most with a 401K plan, that drop coincided with another large sell-off in US equities.
Reports that the US President planned to take it easy on Saudi Arabia over the killing of journalist Jamal Khashoggi (and noting the important role the kingdom plays in keeping oil prices in check) seemed to at least take fears of tension between 2 of the 3 largest oil producing nations off the table, and sparked speculation that there could be some quid-pro-quo on future supply decisions.
The big question: Did Tuesday’s melt-down mark the bottom for energy prices? Today’s good read from Seeking Alpha gives 3 reasons why that may be the case. 1. China will soon end its oil destocking that’s helped inflate global inventories. 2. OPEC is preparing to cut production. 3. Speculators are back to a neutral stance in energy contracts after weeks of mass liquidation.
For those looking for reasons why the selling may continue, look at the increasing oil output expected from Russia & the US on the supply side of the equation, and on the demand side, take a look at why the OECD thinks that growth in the global economy will slow next year.
CME/NYMEX futures will trade in abbreviated sessions both Thursday and Friday (no settlements Thursday) but physical spot market assessments won’t be made and most US companies will be closed, so most rack prices will hold steady through Monday.
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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.