Rally Outkicking Its Coverage?
It’s a quiet start to end another strong week for energy prices that saw the forward curve continue to shrink rapidly as demand picks back up and the storage concerns start to ease (see the charts below).
The path forward is less clear however as some choppy action to end the week leaves traders debating whether the rally has out-kicked its coverage, or if the reopening spurring demand could mean worse news later in the year.
From a technical perspective, the pause in the recovery rally for WTI and ULSD looks like it could be forming a pennant or flag pattern on the daily charts. That pattern is known as a continuation pattern meaning prices should exit in the same direction as they entered, meaning we could see another 20 - 25 cents of upside for refined products later in May should they be able to punch through the highs set earlier this week.
Equity markets continue to show more signs of optimism, rallying again overnight on signals that China and the U.S. could actually agree on something – in this case new steps forward in their trade agreement.
As demand for gasoline picks back up across most states, we’re seeing pockets where the supply network is having a hard time keeping pace, pushing basis values higher and creating some limited allocation issues at the rack. Those issues are not widespread, but highlights the challenges facing refiners and shippers as America returns to business.
The April jobs report smashed all previous records with employment in the U.S. dropping by 20.5 million, which increased the headline unemployment rate to 14.7 percent, and the U-6 unemployment rate to 22.8 percent. Energy futures ticked up in the wake of that report, because amazingly enough it was better than many forecasts, but quickly gave back those gains.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe 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.