Energy Futures Rally To Recover While Trade Wars Continue

Energy futures are bouncing Tuesday morning after reaching fresh multi-month lows overnight as the latest flight to safety sell-off seems to have passed for the time being. The daily moves in energy and equity prices have been strongly correlated in recent days as markets try to sort through the potential fallout of the trade wars, and refined products got caught up in Monday’s stock selloff, only to see a recovery rally today as U.S. equities point to a higher open.

Calendar spreads for ULSD have dropped to a 6 week low as the first solid heating oil season in 4 years winds down and refinery runs remain at average levels through the spring maintenance season. Time spreads for the April/May RBOB contract meanwhile dipped to their lowest level in more than a year before bouncing today, in what could be a sign of shippers over-correcting the anticipated shortage of supply from the short-lived tariffs on Canadian imports.

Speaking of which , the new U.S. Energy Secretary suggested there’s a chance that a deal could be reached to avoid tariffs on Canadian imports to avoid gas and oil prior to the next round’s April 2nd deadline. That news sparked some optimism by a supply network growing weary of an unclear outlook, although it came before Ontario levied a 25% tax on its electricity exports to the U.S., which may spark further retaliation.

The EIA this morning highlighted the latest in a string of LNG expansion projects in the U.S., with Cheniere’s Corpus Christi Stage 3 facility producing its first export cargo last month. That marks the 2nd new export facility to come online in the past 4 months, with several more projects expected to complete construction this year and next. Natural gas is to US producers what crude oil is to Western Canadian producers, with a bottleneck of takeaway capacity the only thing slowing production. The new U.S. export capacity coming online has helped U.S. natural gas prices trade north of $4.50 this week compared to $1.50 a year ago.

Elvis has left the building. Saudi Aramco’s CEO went to the way back machine to take a shot at unrealistic energy transition policies during the CERA week conference. While the reference may be a bit dated, there’s no doubt that those in the industry who made lofty carbon promises based on questionable metrics are rethinking their plans today.