Top End Of Trading Range Tested

WTI and ULSD futures came close to reaching eight month highs overnight before sellers stepped in, cutting back the gains nearly in half for the day in the past couple of hours. This test of the top end of the trading range that’s held prices since June should be pivotal for price action through the end of year that can’t seem to end fast enough.
Bullish supply data from the API and DOE are getting credit for the early strength, adding to the rally built earlier this week on hopes of a demand recovery once the new vaccine can put COVID economic destruction in the rear-view-mirror.
If the top side of the trading range breaks, there’s an easy 10-20 cents of upside potential for refined products, and we could see WTI pushing towards $50/ barrel in short order. If the chart resistance can continue to repel this rally however, we may be due for another pullback and an extension of the sideways trading.
The API reported large inventory draws across the board last week with oil stocks down 5.1 million barrels, diesel down 5.6 million barrels and gasoline stocks down 3.3 million barrels. The DOE weekly report will be released tomorrow since the U.S. is celebrating Veteran’s Day today. OPEC’s monthly report is due out later this morning, and the IEA’s monthly report will be released tomorrow.
The DOE/EIA’s monthly Short Term Energy Outlook had much more of the same uncertainty surrounding COVID and its impact on fuel demand and prices. The government’s energy reporting agency (via the company it hires to provide forecasting, that also sells pricing subscription services) was forecasting that Brent crude prices will hover around $40 for the remainder of this year before averaging $47 next year, which suggests the report was written prior to Monday’s vaccine announcement which has Brent already close to $45. One interesting and unusual item noted in this month’s report was the extraordinary put-call ratio in RBOB gasoline for next spring, suggesting that perhaps…“market participants are hedging against a potential continuation of economic effects of COVID-19 into the 2021 summer driving season.”
The report also highlights a big drawdown in distillate inventories, which had their largest monthly decline in nearly a decade. A combination of factors such as refinery downtime both planned for fall turnarounds and unplanned due to storms, along with a higher than normal starting balance and sharp recovery in demand all contributed to those inventory declines. While several regional markets in the Western half of the country are seeing tight rack supplies of diesel as a result of this, overall refinery margins have not yet recovered much and remain at about half of the levels we came to expect pre-COVID.
Eta regained hurricane strength this morning, but its forecasted path has shifted back to the east, and it’s now expected to make landfall north of Tampa tomorrow afternoon. The shift keeps the storm away from oil production and refining assets in the gulf coast, and given its relative lack of strength, it should not be a major supply disrupter, although Tampa Bay port operations may be delayed for a couple of days. The new path also gives the storm yet another chance to reform over open water as it should reach the Atlantic sometime Friday.
Meanwhile, the 30th named storm of the season now has 80% odds of developing in the Caribbean in the next five days.
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.