Worst Week For U.S. Equity And Energy Prices
We just lived through the worst week since 2008 for U.S. equity and energy prices as the world struggles to deal with the uncertainty of the coronavirus. Central bank intervention seems to be the theme of the day, helping some contracts find a price floor (at least temporarily) as the FED and other banks pledge to step in to support the economy.
While current values look tame with refined products up less than half a cent on the day, the overnight action saw early three to four cent losses swing to three to four cent gains, following closely with similar moves in U.S. equity futures, suggesting that the recent increase in volatility isn’t going away just yet.
Don’t adjust your dial: April RBOB took the prompt trading position today, adding some 11 cents in value from the March contract due to the transition to summer specs. You won’t see that move at the racks today as cash markets adjust for this with negative basis values until the physical terminal conversions happen over the next six weeks.
One data point that shows how fast the market outlook has changed: one week ago the CME’s FedWatch tool showed a zero percent probability of a 50 point reduction in the FED’s target rate in March, and this morning there’s a 100 percent probability given for that rate cut.
Money managers did not appear to be heading for the exits in the first few days of the latest sell-off, with WTI and Brent both seeing small increases in net-length (bets on higher prices) while refined products both saw modest selling. Of course, the data for the COT reports is compiled as of Tuesday, so we don’t know what happened when the selling picked up the pace Wednesday through Friday.
Want a reason for a price rally? The last time money managers (aka large speculators, aka hedge funds) were this negative on diesel positions was June 2017, which was also when ULSD prices bottomed at $1.40 before rallying north of $2.09 in the back half of the year.
Baker Hughes reported a decline of one oil rig in the U.S. last week, with the total count more or less going nowhere so far this year. If oil prices hold below $50 however, there are plenty of analysts suggesting we could see the rig count drop more substantially over the next few months, which would eventually end the string of record-setting U.S. oil production that’s going on three years and counting.
Today’s interesting read: How the virus lent a helping hand in the climate change battle.
Click here to download a PDF of today's TACenergy Market Talk.
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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.