We’re Seeing Overnight Losses Turn Into Morning Gains For A Third Straight Session
We’re seeing overnight losses turn into morning gains for a third straight session as the US East Coast continues to grapple with tight supplies of gasoline and diesel that are giving traders plenty of reasons to buy any dip.
What’s different about the rallies this week is it has been RBOB more than ULSD leading the charge as the East Coast shortages are suddenly worse on gasoline than they are for diesel, with numerous short term terminal outages of RBOB and ethanol reported in the region over the past 72 hours due to various supply delays.
November RBOB futures saw a 24 cent rally from low to high Tuesday, the biggest jump in prices since the chaotic trading in May. The November/December RBOB spread surged past 35 cents during that rally, proving that the rally is more short squeeze caused by a variety of disruptions in supply, rather than an expectation of strong gasoline demand.
Premiums to ship product on Colonial pipeline for both gasoline and diesel remain in positive territory for the first time since May as refiners struggle to find ways to move product from the Gulf Coast to the East Coast.
Who needs more pipelines anyway? While Europe continues to struggle with supply shortages and extremely high prices, natural gas producers in West Texas are now having to pay buyers to get rid of their product as pipeline maintenance reduces outlets for that fuel.
The API reported a build of 4.5 million barrels of crude oil inventory last week, thanks to another 3 million barrel release from the SPR, while gasoline stocks declined by 2.3 million barrels and distillates ticked slightly higher by 635k barrels. The DOE/EIA’s weekly report is due out at its normal time this morning.
A couple of interesting notes from Valero’s earnings call Tuesday (Besides the $2.8 billion in quarterly profit) was that the company expects more SPR releases from the US (of which they’re a major buyer) and they don’t expect any of the refineries shuttered in the past couple of years to come back online.
Speaking of which, an EPA report on the shuttered refinery now known as Limetree Bay (formerly known as Hovensa) suggests that the odds of that plant ever operating again are slim to none. Don’t worry though, China is starting up one of its new refineries this week, and we know how they like to play nice with the rest of the world.
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.