Worst Week Of Selling In Nearly A Year
Energy prices are struggling to carve out a bottom after the worst week of selling in nearly a year finally broke the momentum of the 4.5 month old price rally.
Another drone attack on Saudi oil infrastructure failed to stir the markets much overnight as it appears the damage was limited again, and because the country is still sitting on excess capacity trying to keep prices propped up that acts as a buffer to any short term disruptions.
Every time it feels like the Polar Plunge-driven supply disruptions are being put in the rearview mirror a new report surfaces that shows the challenges are continuing. On Friday it was a report that Colonial was still struggling to move products along its system due to a lack of supply coming from Gulf Coast refiners to push the other barrels further along the line. That news suggests the supply tightness may be shifting east, and more allocations along the Atlantic coast can be expected this week.
Baker Hughes reported an increase of nine drilling rigs active in the U.S., with most coming from the Permian (5) and Eagle Ford (2) plays. It’s worth noting that New Mexico saw an increase of seven rigs last week, which may mean drillers are focusing on getting what they can from that state before the anticipated closure of Federal lands to new drilling activity.
The increase in activity across West Texas and New Mexico is exacerbating the challenge of resupplying the region with diesel after the rash of refinery closures, with rack prices in the area still holding near two year highs relative to USGC spot prices. That means shippers are facing an interesting tug of war between sending diesel east along Colonial or West to the drilling region, and could mean both areas stay tight for longer than if demand hadn’t started to increase just in time for supply to collapse.
Some large funds probably want a do-over after increasing their net length on WTI, RBOB, ULSD and Gasoil contracts – much of which was caused by short positions throwing in the towel and liquidating – just before prices had their biggest selloff in 11 months. The big speculators were doing better in Brent contracts that did see a reduction in net length (bets on higher prices) in last week’s report, which has positions compiled as of Tuesday.
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RIN prices continued to see heavy selling Friday, with both D4 and D6 prices down roughly 18 cents after approaching all-time highs to start the week, which has limited the benefit of rising crack spreads for refiners. There doesn’t seem to be news coming from Washington to drive the reversal, but the EPA did reboot its climate change website last week, and asked viewers to stay tuned until there’s actual content to view. Meanwhile, in the other Washington, a push to create an LCFS program similar to California’s has come under challenges from a “scientific” studies suggesting that bio and renewable diesel combustion do not lower pollution levels as advocates suggest.
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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.