ULSD Pushes to 6-Month Highs, Bears Falter
Diesel futures saw a modest pullback Friday, but still managed to reach a fresh 6 month high and settle with a 6th consecutive week of gains. The light selling has carried through to push prices into the red this morning, while gasoline futures cling to small gains.
The bears seem to have been throwing in the towel with heavy short covering a theme for large speculators with bets on lower price declining by more than 25% in RBOB, Brent and Gasoil contracts in just 1 week. Buy high, sell higher? New length was also added across the board, pushing the net length held by money managers to fresh multi-month, and in a few cases multi-year highs.
Baker Hughes reported another decline in the US drilling rig count last week, losing a net 4 oil rigs while the natural gas count held steady. Texas led the decline again, losing 8 rigs, and it’s hard to blame the operators if you stop and think about what it’s like to work outside in West and South Texas during this most recent heat wave. The total oil rig count is now at its lowest level since March 2022.
So far global energy markets seem to be shrugging off reports that oil infrastructure has come to the front lines of the war in Ukraine. Last week we saw a major Russian oil port and an oil tanker near the Black Sea targeted by drones, with threats that other ports were also at risk. There are also reports that Russia is planning a false flag operation at a Belarusian refinery to draw that country further into the conflict.
Something to watch this week: The July CPI report is due out Thursday and given the strong rally in energy prices – which had been the big inflation buster over the past year – the market could be in for a rude awakening on the persistently high prices despite central banks raising rates to their highest levels in more than 20 years.
More bad news for Suncor. As if the comedy of errors in the past year weren’t bad enough, the EPA Friday said the state of Colorado must revise its permit renewal for the beleaguered Commerce City refinery complex to ensure compliance with carbon monoxide and opacity limits. This comes ahead of the state’s mandated change to reformulated gasoline grades beginning in 2024 to meet the pollution standards set in the Clean Air Act, which seems like a big hurdle to clear for a facility that’s struggling just to operate at all.
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.