Wednesday Snaps Gasoline’s Six Day Green-Streak, Futures Prices Mixed Today
The energy rally ran out of steam Wednesday with refined products wiping out strong morning gains and ending the streak of consecutive moves higher for gasoline.
Weak readings on consumer spending over the holidays sent US stocks sharply lower for their worst day in a month, and that negative sentiment seemed to spill over into the energy arena as some traders perhaps rethought their newfound optimism for demand, while the algorithms no doubt saw sell signals flashing after so 7 straight days of increases left the complex in an overbought condition.
The recent run up in prices has been good for refiners with crack spreads steadily moving higher and reaching 3 month highs this week, at levels that are 2-3X higher than what they were in January the past several years. Of course, part of the reason for that strength is that not all refineries are operating, with a handful still struggling to get back to full operating rates following the Christmas blizzard. We’ll get another look at their progress in today’s DOE report.
Yesterday the API reported another large build in crude oil stocks, even though the SPR releases have ended, suggesting that run rates aren’t fully recovered. Gasoline stocks increased by 2.8 million barrels as we move through the winter demand doldrums while distillates were estimated to draw by 1.8 million barrels.
A Reuters report Wednesday suggests that US refineries will have a busy spring turnaround season after numerous plants delayed work last year to (comply with the White House requests to ramp up fuel supplies) avoid missing out on last year’s record margins. Combined with already low inventory levels and the numerous unplanned issues so far this winter, that leaves the supply network looking vulnerable once again as we move towards the driving season.
French refinery workers are striking again, as part of nationwide protests against pension reform. Last year striking workers caused several plants to cut runs, and contributed to the extreme price swings in the US. At this point, reports suggest this may be a one day affair that won’t force the plants to close, but could become a price driver if things don’t quiet down soon.
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.