ULSD Futures Set New Record: 12-Day Rally
ULSD futures are rallying for a record-setting 12th consecutive session and have now added 50 cents/gallon during that span and are up more than 70 cents in the past month. While a correction is becoming inevitable given this unusual win streak, particularly given that the global supply network is in a much better place than it was when the war broke out, the question in the short term is who is daring enough to jump in front of the runaway diesel train?
The API reported a huge decline of 15 million barrels of crude oil inventory last week, while refined products saw modest declines of 1.7 million barrels of gasoline and 500,000 barrels for diesel. Despite headlines saying the opposite, the market reaction overnight certainly isn’t reflecting that big slide in oil stocks as the gains in both WTI and Brent are lagging far behind products again. The DOE’s weekly status report is due out at its normal time this morning, and the crude oil adjustment factor - that has accounted for volume changes of 15 million barrels in a week several times this year – may be key to reconciling the government’s report to the API.
What a difference 4 weeks makes: On July 7th, the DOE announced a purchase of 6 million barrels for the SPR in a press released it labeled a “Good deal for American Taxpayers”. Yesterday the DOE appeared to cancel those plans with minimal fanfare after the July rally made that good deal turn into something else.
Perhaps the most notable thing to come out of a refinery earnings call so far this week was news that Marathon may be forced to keep a reformer unit at its Texas City (aka Galveston Bay) refinery offline for the entire 3rd quarter due to lingering issues from a deadly fire in May. Marathon was also reported to be forced to shut units at its El Paso refinery this week, giving suppliers in the region concern after the severe shortages caused by that facility and the HFS plant in New Mexico going offline at the same time.
We’re 5 weeks from the peak of hurricane season and there’s not much storm activity to be concerned about. The chances of 2 converging systems off the East Coast this week have dissipated with just a single system given only 10% odds of developing being tracked at the moment by the NHC.
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.