Unusual Day For Market Watchers
Are prices up or down today? That depends on your reference point. Today is an unusual day for market watchers in that futures are trading lower (from Friday’s settlement) but since cash markets have been closed from Wednesday, physical prices may still be moving higher from where they left off since futures moved higher over the holiday.
Good news is bad news:
The early selling seems to be in sympathy with stock markets around the world that are reacting negatively to Friday’s strong US Payroll report that estimated 224,000 jobs were added in June, and has traders betting on a less aggressive rate cut by the FED in July. Based on the CME’s FedWatch tool, traders were giving a 100% chance of at least a 25 point cut, and a 20% chance of a 50 point rate cut at this month’s FOMC meeting prior to Friday’s report. This morning, the odds of a 50 point cut have been slashed to zero, which seems to be disappointing stock markets.
Look out below? The National Hurricane center is giving a low pressure system that’s currently moving over Georgia an 80% chance of developing into a tropical system when it dips down into the Gulf of Mexico later this week. While this pattern would be an unusual path for a tropical storm, and the water this time of year may not be warm enough to allow this system to become a large storm, areas of Louisiana and Texas home to numerous refineries have already been dealing with flood waters and may still be at risk.
The EPA published its proposal for 2020 renewable volumes under the RFS on Friday. The proposed volumes include volume growth targets in line with recent years, and the agency once again decided not to reallocate any volumes waived due to small refinery exemptions, which is drawing loud criticism from agricultural groups and presumably less loud praise from refiners.
A little too optimistic? Note in the RFS table below how the original statute assumed that by 2020 the US would be producing more than 10 billion gallons of cellulosic ethanol, which is half of what the total combined renewable fuel consumption will actually be next year, and some 20 times the expected actual production of cellulosic fuel.
The CFTC commitment of traders reports are delayed due to the Holiday, but ICE published figures last week that showed money managers reduced their net long holdings in Brent for an 8th straight week.
Baker Hughes reported that 5 oil rigs were taken off-line last week, wiping out the gains of the previous two weekly reports. The Woodford basin in Oklahoma accounted for most of the decline last week, after posting the largest increases the past two weeks.
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
The 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.