TAC Market Talk
News from the TAC Energy Trading Desk. Stay up to date with all the relevant energy market news and latest information. Subscribe with the button on the right to get the daily TAC Market Talk e-newsletter delivered directly to your inbox each workday.
After pulling back from multi-year highs to end Thursday’s session, Oil prices were moving higher once again overnight until an early morning tweet from the US President, calling out OPEC for inflating prices, sent prices lower.
It’s not clear if the 3:57am timing of the message was a result of insomnia, or intentionally planned to coincide with the meeting of OPEC and friends taking place in Saudi Arabia this morning.
Meanwhile, the committee formed by the cartel last year to track compliance with output cuts reported Thursday that the plan had all but eliminated the global glut of oil inventories.
The battle of words, whether they come on the sidelines of a meeting, snapchat, or any other medium, are likely to keep traders on edge today, but it may not change any longer-term trends unless a major change in the current policies of either the oil importers or exporters is made.
There was an explosion and fire at the Valero refinery in Texas City Thursday. No injuries occurred and the gulf coast cash markets don’t appear to have reacted at all to the news as it’s unclear what units may have been affected.
We’re witnessing strong follow-through buying following a technical breakout in oil futures this week. WTI and Brent are up around $1/barrel so far today, threatening the $70 and $75 marks respectively after a bullish DOE report helped them punch through chart resistance Wednesday.
Refined products are joining in on the rally, with RBOB gasoline futures reaching new highs for the year, while ULSD futures are just 2 cents away from 3-year highs of their own.
Although the inventory changes weren’t large by historical standards, yesterday’s DOE report had plenty for the bulls to feel good about.
Total crude inventories held below the 5-year seasonal average for a 4th straight week. the US Oil output estimate set yet another record at 10.54 million barrels/day.
Total US petroleum demand estimates surged by more than 1.5 million barrels/day last week, led by a gasoline figure that outpaced even the best “driving season peaks of the past 10 years.
Total diesel stocks held below their 5 year average for a 6th straight week, and reached their lowest total since the wake of Hurricane Harvey.
The bears will note that weekly demand estimates are notoriously unreliable, but it’s hard to argue with the 2018 average demand that’s held well above the 5-year seasonal range in spite of some very challenging weather conditions across the country. The bears will also note that US crude oil production hit yet another new record at 10.54 million, but it seems that until the export flows are unable to clear those incremental barrels, traders are content to focus on inventory instead of output.
The energy complex is moving higher once again, after surviving another sell-off attempt Tuesday morning, aided by a strong move in US equities, and inventory declines. WTI hit a fresh 3-year high at $67.85 in the past few minutes, after bottoming out at $65.56 right about the time US stock markets opened for trading yesterday morning.
Tuesday’s reversal and this morning’s follow through put both WTI and Brent on the cusp of breaking through the upper end of the April range, and adding another $3/barrel or more to their 3 year highs. The first test to confirm this breakout will be for WTI to hold above the $67.70 range today.
The API was said to report inventory draws across the board last week, with crude oil stocks down 1 million barrels, gasoline down nearly 2.5 million barrels, and distillates down 854 thousand barrels. The DOE report will be out at 9:30 central, and may well be the catalyst for crude prices to either make their next break to the upside, or run out steam once again.
The battle over a new Canadian oil pipeline reached a new level this week when Alberta & Saskatchewan threatened to halt oil deliveries to British Columbia, unless the coastal province started cooperating with plans to get oil to its ports. Besides being an interesting study in provincial politics, this issue could have direct impacts on US refiners that are running Western Canadian crudes, and benefitting from the discounts caused by the delivery bottlenecks.
Energy prices were going nowhere this morning, with little in the way of news to drive the action after Monday’s Syria sigh of relief selloff. Another wave of selling picked up around 7:40am central after WTI fell back below the $66 mark which appears to have triggered some stops.
While energy prices are sliding for a 2nd day, US stock indices are pointing to another strong open as investors seem to enjoy getting to talk about the pending earnings reports instead of the potential for war.
If the pullback continues this week, both oil contracts look like they have $3/barrel to fall before hitting longer term support, which could mean 5-10 cents of downside potential for refined products. That said, we remain within striking distance of multi-year highs, and the charts are showing the potential for WTI to make a run at $70, and Brent to have a shot at $75 if the bulls can find enough momentum to break through last week’s peak levels.
The EIA released its monthly drilling productivity report Monday, and showed an increase in per-rig and total production rates for all of the country’s major shale plays.
Oil prices are pulling back from the 3-year highs set last week and stock markets are rallying after the Friday night missile strikes in Syria did not escalate further.
It seems like when the market is focused on a trade war, equity and energy prices are moving in tandem, while when they’re focused on a real shooting war, the asset classes will move in opposite directions. There are legitimate fundamental argument for both reactions – a trade war may be bad for demand while a real war could be bad for supply – so it’s likely we could stay in this pattern until both stories move off the front page.
7 more oil rigs were put to work last week according to Baker Hughes’ weekly report. That brings the total number of active oil rigs in the US to their highest level in 3 years, just in time to capitalize on prices that are at their highest level in that same span.
Money managers still like betting on higher Brent crude oil prices, with the net long position held by the speculative category of trader reaching a new record high last week. They are less enthused about the US contracts, making small reductions in ULSD, WTI and RBOB for a 2nd week, although those net positions remain well above their previous 5 year range.
The trade war & real war dilemmas continue to dominate the action in energy prices, with WTI and Brent holding near 3-year highs even while refined products seem to have lost their upward momentum.
When you have the US, Russia, Saudi Arabia & Iran (4 of the 5 largest oil producing countries in the world) dangerously close to armed conflict, it’s not hard to understand why oil prices have hit their highest levels in 3 years this week. One key difference today from the past 3 years is that the excess inventory of oil around the world is no longer there to act as a buffer when these flare-ups in the Middle East happen.
The IEA confirmed that reality in its monthly oil market report, saying it looks like OPEC has accomplished its mission as global oil supplies have pulled back near their 5 year average. The report holds the global demand outlook steady, while noting the uncertainty surrounding the potential trade wars and real wars that are influencing energy prices.
While the war stories continue to take the headlines, the relative cat fight over the RFS has been put on hold for 3 months following Monday’s meeting at the White House. RIN Values have stabilized in the high 30s for ethanol and low 60s for biodiesel as we await the next round of big oil vs big ag.
Charts from the IEA’s monthly report.
The rally in energy prices continued yesterday with prompt month gasoline and diesel futures tacking on 2.5+ cent gains on the day.
It seems that international tensions are overwriting fundamental measures this week as a bearish confirmation of Tuesday’s API report by the Department of Energy’s weekly inventory update seemed ineffective in stalling this week’s rally. Crude oil and gasoline stocks both built by 3.3 and .5 million barrels, respectively, while diesel offered the only bullish number, drawing down by 1 million barrels. Refinery runs continued their streak in setting seasonal highs and showed a .5% increase in rated last week, topping 17 million barrels per day in throughput.
Self-fulfilling theory or not, Reversal Thursday is gripping energy futures this morning; all contracts concerned are off 0.5%-1% so far today. Barring more news from the White House on how “smart” our anti-Syrian missiles are, today should be mostly quiet regarding price action. RBOB, HO, and WTI contracts all hit a temporary technical indicator that serves as a sort of sanity check on large market moves both yesterday and this morning. The top Bollinger Band seems to be keeping the rally at bay for now, allowing other chart elements to catch up to this week’s market move.
Energy prices had a strong day yesterday, topping last week’s highs among all three main products and sending Brent crude to a fresh high for the year. Calm words out of China soothing suspense and fear of a looming trade war took the majority of the credit for the large upward move. The uptick in uncertainty surrounding the Middle East, specifically Syria, seems to have contributed to yesterday’s run-up as well. The drop in tension with a demand center and a bump in tension with a supply center seemed to be a perfect combination to rouse some of the bulls that dozed off waiting on a spring rally.
Prices seem cautiously positive this morning after yesterday’s rally. Among an API report with mostly bearish figures, those that would see prices continue their climb are clinging to the ~4 million barrel draw in diesel inventories for upward momentum. Crude inventories built 1.8 million barrels and gasoline added just over 2 million barrels last week. NYMEX HO leads the complex with a gain of $.0170 so far this morning, dragging RBOB and WTI with it at gains just over flat.
Crude oil and its refined product counter parts’ prompt month futures charts showed some pretty interesting action yesterday. All three contracts started the day below their respective 10-day moving averages and blew past them through the day. Setting new highs for 2018 seems to be the only technical resistance keeping the complex from adding another 5-10 cents in the near term. As for the rest of this week, direction from the DOE report (due out at 9:30 central) will likely set the tone, with global news providing secondary cues.