Oil Prices Ticking Lower Again this Morning

After a brief bounce overnight, oil prices are ticking lower again this morning, threatening the lower end of the August trading range as they give back most of the gains picked up late last week.  If prices can take out the August lows, and some significant moving average support levels along with them, this week, there’s a strong case to be made for more selling.  If not, it’s likely we’ll see more of this choppy, but ultimately aimless, trading action as we head towards fall.

The remnants of Tropical Storm Harvey are expected to reorganize once they reach the gulf of Mexico later this week.  While forecasts suggest the system will stay south and west of the major oil producing & refining zones along the Gulf Coast, south Texas may see some very heavy rains from this system.  Meanwhile, Florida is likely to also get heavy rains and some flooding from another tropical system, even though it’s given a low probability of further development.

Ethanol RINs have fallen back below the 90 cent range after an appeals court ruled the EPA went too far in denying a small refinery exemption for the renewable fuel standard to Sinclair Oil.  The ruling has sparked speculation that many other small refiners will request similar exemptions now, and could create some short term excess if those companies can sell their RINs back in the open market.  On the other hand, it’s still unclear how the EPA will handle the other recent court ruling that said it “went too far” in lowering the total amount of renewable fuels requires nationwide over the past 2 years.

Stock markets in the US and across the globe seem to be breathing a sigh of relief this week after two nervous weeks of trading that saw volatility readings reach their highest levels in almost 2 years. The correlation between energy and equity prices has stayed soft lately, and the uptick in stock volatility has not carried over to oil markets yet.  You can make a case that this type of action suggests a healthier energy market that’s trading on its own fundamentals compared to the “Risk on/Risk Off” patterns we saw earlier this decade, but it’s still worth watching as we approach the bottom end of the summer trading range in case the selling in stocks starts spilling over.

Today’s interesting reading:  While Russia is claiming new technology to replace fracking, the WSJ notes that more US drillers are going old-school.  Meanwhile, according to Bloomberg, we can add convenience stores to the list of things that millennials are changing.

CLICK HERE for a PDF of today’s charts

Refined Products Leading a Sell-Off this Morning

Refinery issues and storm concerns stirred up the oil market on Friday, wiping out the weekly losses, and helping RBOB gasoline prices rise nearly a dime from Thursday’s low trade.  Those concerns are subsiding this morning, with refined products leading a sell-off that threatens to put the complex right back into the sideways trading range that’s held the action for most of the month.

Speculators continued to add to their net long positions (betting on higher prices) in Brent and ULSD last week, while they cut back slightly in WTI and RBOB.  The increase in Brent was driven by new long bets entering the market, while shorts were stable.   The fund positioning between Brent and WTI may have been a contributing factor in the premium for the European contract reaching its largest level vs. the US contract in nearly 2 years last week.  That spread was a major driving factor in all sorts of arbitrage plays before the oil bubble burst in 2014, and could be an important factor on price action for crude and refined products in the back half of the year.

The Baker Hughes oil rig count showed 5 fewer rigs last week, as drilling activity cools with prices in the US stuck below the $50 mark.  Even if this does in fact mark the peak for drilling activity, we are likely to see production levels continue to climb for several more weeks, if not months, as the wells already drilled still need to be fracked and brought in.

For those who may be wondering how the futures market may react to the eclipse today, the honest answer is that the NYMEX didn’t exist the last time this occurred in the US, so it’s really hard to say.  My guess is it will be similar to the action we see during March madness with trading getting quiet as the attention turns elsewhere.

CLICK HERE for a PDF of today’s charts

Thursday Events Swiftly Change Market Position From Bearish to Bullish

Yesterday started off as very bearish since we broke the 200 day moving averages in both RBOB and Diesel at 1.5601 and 1.5584. That was 2 cents lower and then the entire market jumped on a story about Shell’s refinery Deer Park Texas had a fire in one unit. The RBOB crack jumped one dollar from its low on that story. Next there was a terror attack in Spain which spooked the market for a second time in a few hours. Therefore, the market swiftly changed from a bearish position to bullish in a short time. China also had a fire in one of their largest refineries in Dalian yesterday. It was extinguished quickly.

Crude stocks continue to draw down in the US and may be a sign that rebalancing is taking place. Yet the wild card continues to be Nigeria and Libya since they are free to produce whatever they want. Russia seems to be struggling with holding back their production after March of 2018. Citigroup came out with their projections this morning expecting crude to trade within a range of $40.00 to $55.00 through 2022.

CLICK HERE for a PDF of today’s chart

Largest Drop in Crude Oil Stockpiles Across the US Last Week

Last week saw the largest drop in crude oil stockpiles across the US, down almost 9 million barrels. Although a number like that would seem to incite some buying, it was coupled with an increase in diesel stocks and an unseasonal build in gasoline. Pairing this with a 3% drop in gasoline demand during America’s driving season and you’ve got a case for bearish action. RBOB and ULSD futures settled lower by $0.0157 and $0.0252 per gallon, respectively; NYMEX crude chopped 17 cents in sympathy.

Reaching record gasoline demand earlier this summer has sparked analysts to take a good look at energy consumption now as opposed to last time we called peak demand back in 2007. Now days, we are consuming 9% more gasoline despite increase governmental sanctions via CAFE standards and ethanol requirements. It seems that our driving population growth is, on a large scale outpacing our current gas output. If this is also the case for the rest of the world, emerging markets may not have the infrastructure to keep up with their respective demand and we could see an increase in gasoline exports, which could push prices higher.

Both refined products opened above their respective 200-day moving  averages and have since moved below them, with conviction. Settling below will likely incite more selling and solidify the bear market for energy commodities. About 5-10 cents of downside will likely be seen near term if that support level is breached. Crude oil prices are looking to make a run at a less important support level around $46.50 and will likely look to the rest of the complex for direction.

CLICK HERE for a PDF of today’s charts

Oil Price Survive a Trip to the Brink Tuesday

Oil prices survived a trip to the brink Tuesday as WTI and Brent each came within 2 cents of breaking through support at $47 and $50 respectively.  Ordinarily the bounce that followed after touching chart support may inspire some follow-through buying, and a large draw reported by the API set the stage for a big move today.  Instead, crude oil is trading flat, providing the latest evidence that this market is lacking conviction.

Most weeks the API only shows up on the radar when they release their inventory reports, but yesterday the industry group made headlines as it published support of the President’s executive order to streamline energy infrastructure projects.  It’s unlikely that order will have any short term impact on prices, given the long-term nature of these projects, but may be another contribution to the longer term trend of cheaper energy in the US.

Later in the day, the API was said to report a 9.2 million barrel decline in total US crude oil inventories, the largest weekly drop reported in almost a year.   The price reaction was muted however as Cushing OK stocks were said to build by more than 1 million barrels, and gasoline stocks had another small counter-seasonal build of 300k barrels.  Diesel stocks were said to draw by 2.1 million barrels.   The DOE report is due out at 9:30 central.

Activity in the tropics has really ramped up this week, as it often does this time of year, with Hurricane Gert churning north off of the East Coast, 2 more areas to watch forming as they cross the Atlantic and potentially a 3rd right behind them off the coast of Africa.  Gert is still forecast to stay offshore, and it’s too soon to say where any of the other 3 systems will go, or if they’ll develop, but the conditions are ripe and some forecasters are predicting the gulf coast will see multiple named storms over the next 2 months.

CLICK HERE for a PDF of today’s charts