WTI Punched Through 200 Day Moving Average
WTI managed to punch through its 200 day moving average Tuesday, sparking the first notable price rally in crude and refined products in the past couple of weeks. While this may be the most interesting move in a while, the gains are small on the weekly and monthly charts, and don’t change the long-term price outlook that’s torn between supply concerns in the Middle East, and demand concerns just about everywhere else.
Today will be the busy day for news with the DOE’s weekly status report due out this morning and the FED decision this afternoon. Pretty much everyone is expecting at least a 25 basis point cut from the FED, so we may not see much market movement unless something else happens, or the FOMC changes their forward outlook in the statement.
Today is also the last trading day for August 19 RBOB and ULSD futures, so look to the September (“U”) contracts to see where the real action will be that should drive physical prices at the racks tomorrow.
The API was said to show inventory draws across the board last week with crude stocks down 6 million barrels, gasoline down 3.3 million and diesel down 890k. The DOE’s weekly report is due out at its normal time.
The tropics are starting to heat up. Disturbance 1 that’s headed towards Florida is still only given a 10% chance of development while a second disturbance is given a 50/50 shot at reaching storm status over the next 5 days. The first system looks like it will stay off of the SE coast and be a non-issue, while it’s too soon to say if the 2nd has a chance to thread the needle in the Caribbean and become a threat to the US.
A common theme among the earnings reports from refiners in the past couple of weeks has been the anticipated impact of the IMO bunker fuel changes coming at the end of the year. Meanwhile, Indonesia has already announced its plans to not enforce the new rules, which some worry may be the first of many that may nullify the efforts to clean up the fuels used at sea.
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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.
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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.