We’re Seeing Plenty Of Choppy, Back And Forth Trading In Energy Markets This Week
We’re seeing plenty of choppy, back and forth trading in energy markets this week as the tug of war between tight supplies and a negative demand outlook continues, while numerous geopolitical headlines are keeping markets on edge.
2 people in Poland were killed by a missile Tuesday, which appeared to help push energy prices higher until reports overnight that it may have been errant fire from Ukrainian air defenses, not a Russian attack that could have escalated the conflict. Adding to the chaos, a different missile attack knocked a pumping station offline and caused an oil pipeline traveling through Ukraine to cut flows to neighboring countries.
Meanwhile Iran has apparently started up its saber rattling campaign again with reports that an fuel tanker off the Oman coast was hit by an armed drone overnight, a day after the US Navy intercepted a large shipment of explosives in the area.
The API reported a large draw of nearly 6 million barrels of crude oil last week, despite another 4 million barrels being released from the SPR. Gasoline inventories were estimated to build by 1.7 million barrels while distillates increased by 842,000 barrels. The DOE’s weekly report is due out at its normal time this morning.
Ethanol prices have been dropping this week, but could reverse course after a 3rd union has rejected the agreement with railroad operators, which may force congress to step in to avoid a nationwide rail strike. The EPA was supposed to release its proposed rules for the RFS in 2023 today, but has received a 2 week extension to November 30. RINs are holding near 18 month highs as the market seems to be betting the agency will take a hard line on refiners.
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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.