ULSD Futures Broke Above $3/Gallon Monday, For The First Time Since February 1st
ULSD futures broke above $3/gallon Monday, for the first time since February 1st and buyers have followed through the overnight session pushing the newly prompt September contract up another nickel to start the day.
This would mark an 11th consecutive day of gains for the prompt ULSD contract as long as prices don’t collapse, but a sharp pullback later this week seems likely given the flashing “overbought” indicators on the daily charts after prices have rallied just under 50 cents/gallon in that span. One major difference from a year ago (besides being impressed by a 50 cent diesel move in 2 weeks, not a day) is that the strength in ULSD is not coming on the back of stronger natural gas prices in either the US or European markets, so it’s hard to argue that this recent run-up has anything to do with expectations for the winter heating season, which is often a reason for distillates to rally into the fall. (See charts below)
Gasoline prices are lagging distillates, trading down 1.5 cents after a failed rally attempt overnight, as seasonal realities start to set in with the September contract starting out well below August, and being the last summer-grade contract of the year. Currently October futures are trading 27 cents below September, as relatively tight low RVP supplies are set to turn into ample winter inventory. Even though RBOB futures are trading 19 cents below the high set Friday, they’re still holding above the trend line that’s carried them on a 50+ cent rally since July 4th, so there is still a chance that we could see $3 gasoline futures before the summer comes to an end.
Perhaps more important than the seasonal factors in refined product prices at the moment is the direction of the US stock market, as energy prices have had a stronger correlation to equities over the past month than they have over the past few years.
Ethanol prices continue to slide this week, on the backs of weaker corn prices that are hovering near 2-year lows. The soft ethanol market seems to be spilling over into RIN prices, with D6 values dipping below the $1.50 mark for the first time in a month on Monday.
The Dallas FED’s Texas manufacturing survey showed declining activity for a 3rd consecutive month in July, the first such stretch since the COVID lockdowns more than 3 years ago. Prior to that you have to go back to 2015 following the oil price crash to see a stretch of declines this long. There’s no doubt that the slowdown in drilling activity reported for most of the year has contributed to this slowdown, but there’s plenty of doubt on whether or not that will drive the recovery now that prices are back north of $80 as producers still seem more focused on dividends than new investment.
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.