ULSD Futures Carry Momentum From 15 Cent Bounce
Diesel prices staged an impressive reversal Tuesday, bouncing more than 15 cents off of chart support, and that upward momentum carried through the overnight session to push prices to a fresh 6 month high. Gasoline and Oil prices staged similar but less dramatic recovery rallies and continue to follow diesel’s pull higher this morning with charts suggesting there’s room to continue pushing higher.
While equities also bounced noticeably off their lows Tuesday, the timing and size of the move in energy contracts suggests there was more to the rally than just following stock markets. Given the bandwagon jumping we’ve seen from money managers in energy contracts over the past several weeks it seems plausible that once support held, new funds were encouraged to join the party and bet that 6-month highs are still a good time to buy.
The API reported an increase in crude oil inventories of 4 million barrels last week (unless you believe the other headlines that say they dropped by 4 million barrels), following the huge draws the week prior. Diesel inventories were reported to drop by 2 million barrels, while Gasoline inventories were estimated to draw slightly around 410,000 barrels. The DOE’s weekly report is due out at its normal time, and after a huge swing in the adjustment factor drove the largest decline on record for crude oil last week, the market seems fully prepared to shrug off the headline oil inventory values as they did last Wednesday. Refinery runs will be a number to watch this week to see the actual impact of the heat wave and the numerous refinery hiccups that have come with it. PADD 2 gasoline stocks are also worth a watch as we’ve seen basis values in both the Group 3 and Chicago markets rally sharply in the past week, foreshadowing tight supplies ahead of the fall RVP transition.
California’s LCFS credit values have been rallying for the past few days following an announcement of another workshop on August 16 to discuss changing the program’s standards to (presumably) lower pollution targets similar to what we saw with the Cap & Trade program in July that sent CCA values soaring to record highs. That bump in LCFS values is welcome news for the rapidly expanding Renewable Diesel production crown that are dependent on those credits to turn a profit. Washington and Oregon’s programs meanwhile continue to come under fire for driving fuel prices in those states to California levels.
For real this time? Mexico’s president kicked the can down the road again on the start date for Pemex’s new Dos Bocas refinery. The facility is already roughly 3X over budget and years behind schedule, and after a grand opening that promised fuel production no later than July, the most recent target has been moved to November. Coincidentally, November is also the new estimate for the first production from the Dangote refinery in Nigeria, which like Dos Bocas may either have a large impact on Atlantic basin product markets or remain a pipe dream depending on what’s actually happening behind the refinery gates.
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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.