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Tuesday, Apr 30 2019

Refined Products Leading Rally

So much for the sell-off. Refined products are leading a rally this morning, trading up nearly 4 cents/gallon, after technical support managed to hold up through last week’s heavy selling, and a pair of bullish oil headlines made their way through the markets overnight.

Venezuela’s opposition leader called for a military uprising, which is certainly a notable turn of events in the ongoing saga, but probably won’t do much short term to change the flow of oil from the region. You could argue that the move – if successful – will be bearish for oil prices as a regime change should help allow the oil (and dollars) to begin flowing again.

Meanwhile, last week’s call from the US President for OPEC to increase production was refuted by the Saudi oil minister, which seems to also be taking credit for the early buying spree. The full text of the Saudi oil minister’s comments aren’t quite as bullish as headlines might make it seem, as he reiterated the Kingdom’s plan to replace any lost Iranian exports, they just don’t think they’ll need to break the current agreement in order to do so.

While the oil headlines are getting credit for the early rally, refined products are actually leading the charge higher, with both RBOB and ULSD up more than 2%, compared to around 1.5% for Brent and WTI. There do not appear to be any refinery issues to explain the rally, so it seems this may be more technical-based buying now that the trend-lines have held.

Speaking of refiners: Most major refiners have been reporting much weaker earnings in Q1 2019 vs. a year ago as the wide crude spreads that drove profits in 2018 have compressed dramatically.

Today’s interesting read: Philip Verleger compares the current oil supply issues in Iran and Venezuela to 19 previous oil shocks.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Apr 29 2019

Energy Markets Treading Water To Start Week

The energy markets are treading water to start the week after the biggest daily sell-off in more than 2 months broke a streak of weekly gains and threatens to break the bullish trend-lines that have pushed prices higher since bottoming in December.

Friday’s heavy selling was largely blamed on a statement from the US President that he’d reached out to OPEC about keeping oil prices low. Even when that statement was refuted by OPEC, the market did not reverse course suggesting there was a wave of liquidation at hand after a 7-week-long rally in WTI and similar moves in the rest of the complex.

Wondering why Trump Tweets seem to roil the oil markets? Read this piece by Michael Lynch.

Baker Hughes reported a decline of 20 oil rigs last week, the largest weekly drop since January, and the 2nd largest of the past 3 years. The market seemed to shrug off that news Friday as the report did little to stem the tide of heavy selling, another indicator that this market had been over-cooked.

Money managers continued their steady increase of net-long holdings in WTI and Brent last week, while refined products both saw a slight decrease. This week’s COT reports will be closely watched to see how those funds weathered Friday’s sell-off. Whether or not those funds head for the exits now may determine if prices bounce on the trend support and continue higher, or if they’ll break, and spark another May sell-off.

The EIA this morning noted how exports of various petroleum products from the US Gulf Coast have been aided by an expansion of the Panama Canal.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Apr 26 2019

Bull Market In Energy Prices May Have Ended

The bull market in energy prices may have officially ended this week if the early wave of selling can hold up through the afternoon. The week started with the US removing Iranian-sanction waivers, and Thursday saw new highs for the years after reports that Russian oil was being rejected in Europe. The Iranian news was countered by the IEA’s report that other countries besides Saudi Arabia now had spare capacity to increase oil shipments if needed, and Russia has already committed to fixing its quality issue via an alternate pipeline route, and suddenly in about 24 hours the week’s gains have been erased.

If WTI (currently trading at $63.91) settles below $64, it would snap a streak of 7 consecutive weekly gains, and creates a bearish-looking bar on the charts, just in time for the “Sell by May and go away” chants to begin. The correlation between equity and energy markets remains strong, and with stocks ticking lower after multiple US indices reached new record highs this week, the stage is set for a large potential correction in both asset classes.

Adding to the negative sentiment this morning: ExxonMobil (a DJIA component) reported a sharp drop in quarterly earnings and its stock is down more than 2 % in early trading. The news channels appear to be struggling to figure out why the earnings were weak in Q1 even though the company made a report to the SEC estimating Downstream earnings would drop by nearly $2 billion due to tighter crude spreads and hedge losses more than 2 weeks ago.

The bulls may counter that the strong backwardation in Brent crude proves that buyers are still having a difficult time finding crude oil near-term, suggesting there may be a fundamental reason why today’s selling may be nothing more than a good buying opportunity. In addition, we have not yet broken the bullish trend lines that started when prices bottomed out on Christmas eve, so it’s still a little too soon to call an end to the 2019 run. How the money managers that have been steadily increasing their bets on higher prices react to this pull-back may well determine if this is just a bump in the road for energy bulls, or the end of it.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Apr 25 2019

Crude Oil Stocks Remain Above Seasonal Average

The 5.5 million barrel build in crude oil stocks reported by the EIA applied some selling pressure to refined products yesterday, keeping them in the red. Crude oil stocks remains above the seasonal 5-year average while output hit the same all-time-high level it did a couple weeks ago.

Prices have been sent higher this morning, however, on news that several Baltic countries have halted Russian crude imports over “quality concerns”. The European crude benchmark doesn’t seem to care if this move might be some sort of political posturing as it breaks through the psychologically important $75 per barrel price level and sets new highs for the year.

More news that surely isn’t hurting today’s rally is the discovery that sabotage caused the fire on one of Nigeria’s pipelines, resulting in an oil production decrease of 8%. While this is the second disruption to oil infrastructure the country has seen in a couple months, oil production from the OPEC member has remained relatively stable over the past year.

Refined product futures continue to tick higher, helped by a new seasonal high set for US petroleum demand reported yesterday. Stockpiles of both products remain below their respective 5-year averages but as refineries continue to return from the rash of planned and unplanned maintenance we saw earlier this year, we could see bullish pressure wane going into the summer.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Apr 24 2019

Futures Pulling Back From Fresh Highs

Futures are pulling back from the fresh 2019 highs set during yesterday’s trading session on some bearish inventory data from the American Petroleum Institute. While crude oil stocks are estimated to have the largest draw down of the three main benchmarks (-6.8 million barrels), it is actually the RBOB futures contract that is leading the complex lower this morning, despite its relatively muted 2 million barrel draw in national gasoline stores.

The May RBOB contract is showing a 3 cent loss so far this morning, leaving May HO and June WTI lagging behind with losses of about a penny and 14 cents per barrel respectively. A confirmation of the API’s report by the EIA could spur prices lower; the report is scheduled to be released at 9:30 AM CDT today.

The disparity between energy and equities continued to widen yesterday as equities hit an all-time high. Dovish sentiment emanating from central banks and a positive outlook on US-China trade talks seems to be bullish enough to push past fears that this historic rally might be reaching the end of its cycle.

A 7-month-long pattern completed on the RBOB futures chart earlier this week, leaving general technical price direction open for the near term. Coming off of a very exuberant spring rally in gasoline prices, the market adage “sell in May and go away” might prove to be prudent advice rather than finance blather as a stronger case for lower prices seems to be emerging.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Apr 23 2019

Prices Are Flat Across Energy Board

Prices are flat across the energy board this morning after breaking through technical resistances in compelling fashion yesterday. Prompt month HO is up just over half a cent after lagging the complex during yesterday’s rally. Gasoline futures are hopping back and forth over where they ended yesterday while crude oil seems content barely in the green.

Some bullish news out of Libya and Venezuela helped bolster prices yesterday, but stern sentiment from the White House on Iran imports is claiming the majority of the credit. Allowing sanction waivers to expire at the end of April will essentially terminate all Iranian exports to 8 countries, including China, overnight.

A sister article to yesterday’s report on US-Mexico energy trade, the EIA published today that the US set record high petroleum product exports in 2018. Of the countries our three largest exported products are sent, Mexico ranks first in both gasoline and diesel and second in propane. Last year, Mexico imported 529,000 barrels of gasoline from the US per day, more than all other country combined.

Buying pressure for gasoline futures may show signs of waning in the next couple weeks. The May contract has continued RBOB’s rally dating back to the beginning of the year, and set fresh 2019 highs overnight, but traded volume for the gasoline benchmark has continued to slow for about two weeks now. If we in fact saw some ‘last gasp’ buying last night, prices could be seen 20 cents lower in the short term.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Apr 22 2019

Energy Futures Surging Higher To Start Week

Energy futures are surging higher to start the week as the US announced it would let waivers for Iranian crude buyers expire. There are also reports that the US may have taken an unusual stance of signaling support for the Libyan commander trying to overthrow the UN-backed government. Add uncertainty from those 2 OPEC nations to the certainty of Venezuela’s sad situation, and it’s easy to see why oil prices are on the rise today.

If the early gains today can hold, this would mark a technical breakout for all contracts, leaving the door open for WTI to make a run at $70 and Brent to have a chance at $80, which would mean another 15-25 cents of upside for refined products. If for some reason prices can’t hang on however, this early spike will look like a bull trap at the end of a strong spring rally.

Money managers continue to jump on the energy bandwagon, with net-length held by speculators increasing in all of the big 4 petroleum contracts last week, while WTI saw an 8th consecutive week of gains. While the net length in oil has been steadily increasing of late, the total exposure is still close to the 5-year average range for this time of year, suggesting there’s more dry powder available should those funds choose to continue their buying spree. RBOB gasoline meanwhile is approaching a record-high net length, which can be a contrary indicator, since so many speculators have already bet on higher prices, the market can run out of new buyers.

Baker Hughes reported a decline of 8 oil rigs in the US last week, spread out across Texas, Oklahoma, Louisiana and Colorado.

The EIA this morning published a note on the changing dynamics of US energy trade with Mexico.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Apr 18 2019

Energy Futures Lacking Conviction To Make Next Big Push

Energy futures continue to trade within striking distance of 5-month highs this morning, but seem to be lacking conviction to make the next big push. Gasoline prices are once again trying to pull the rest of the complex higher, and are currently less than a penny away from setting new highs for the year, and ending talks about the seasonal price peak being behind us.

Tomorrow is Good Friday, one of 3 holidays of the year in which futures trading will be shut completely so when trading halts at 4pm today it will not reopen until Sunday at 5pm. Spot markets will also not be assessed, so rack prices posted tonight will carry through the weekend.

Because the West Coast (PADD 5) is largely isolated from the rest of the country due to both product specifications and logistical constraints, its inventory levels tend to have little impact on futures trading (since physical delivery for RBOB and ULSD contracts is in New York). Looking at the PADD 5 stocks and output levels which are both at multi-year lows, it’s easy to see why gasoline prices along the left coast are trading 50-60 cents higher than in most other major hubs.

Ominous sign or bump in the road? Total diesel demand in the US dropped sharply for a 4th consecutive week according to the DOE’s estimate. At 3.3 million barrels/day, compared to a 5 year seasonal average of 4.1 million barrels, total consumption is at a level usually reserved for the Holiday season when many trucks are taken off the road. This could be the most telling sign yet of a pending economic slowdown in the US. It could also be a sign that planting activity has been delayed by weather this year, or just another sign of how challenging it is for anyone – even a government agency – to gauge consumption in real-time.

Excerpt from the FED’s “Beige Book” on economic activity in the energy sector:

Energy

Energy activity grew modestly, and outlooks improved. Production rose at a slow pace, but drilling activity continued to slide as firms reined in spending, including orders for new equipment. Oilfield services firms and equipment suppliers noted surplus capacity for fracking services and slim margins. Availability of additional pipeline capacity out of the Permian Basin has propped up crude oil priced in West Texas relative to the Gulf Coast. Firms responding to the first-quarter Dallas Fed Energy Survey, on average, expect the WTI oil price to be around $60 per barrel at yearend 2019--above the reported average breakeven price to profitably drill new wells. Uncertainty in price outlooks declined partly because contacts were more confident that OPEC would sustain production cuts in the second half of the year.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Apr 17 2019

Energy Futures Back On The Climb

Energy futures are back on the climb, with Brent crude pushing north of $72 for the first time in 5 months overnight. A steady economic growth report from China in the first quarter, despite so many concerns of a slowdown, is getting credit for the early move higher in equity and energy markets, along with inventory draws reported by the API.

The API was reported to show draws in crude oil and gasoline inventories of more than 3 million barrels las week, while distillates built by 2.3 million barrels. The EIA’s weekly report is due out at its normal time this morning. Watch refinery runs to see if plants are coming back online after a busy spring for planned and unplanned repairs, and import levels to see if the reinforcements have arrived yet, particularly on the West Coast, which Reuters is reporting will set a record in April.

Despite the recent price run-up and retail prices in the refined-fuel island known as California pushing north of $4/gallon this week, the EIA is still forecasting that gasoline prices across the US will be lower this summer than they were last year. IF we saw the peak of gasoline prices for the season last week, it would mean RBOB prices topped out about 21 cents below last the 2018 spring peak, although the rally started from a much lower level, making it the largest spring run in the past 3 years.

If you’ve been wondering why diesel prices have been lagging in spite of fairly tight inventories across much of the US, and the IMO spec change looming, look no further than this report showing how over the road trucking demand – which makes up nearly 2/3s of US diesel consumption – has softened over the past 2 quarters. That relative weakness shows signs of being ready to flip however as ULSD futures broke through to a new high for 2019 overnight.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Apr 16 2019

The Great Debate Of Global Oil Supply Continues

Energy futures are treading water this morning, ahead of the weekly inventory reports. The great debate of global oil supply continues, with bulls suggesting that production cuts by OPEC & Russia, whether intentional or not, could push oil to $100 while bears will note that spare production capacity and a global economic slowdown are more likely to push prices to $40.

After a strong rally, there are finally signs that the spring rally for gasoline prices may finally be ending. California retail prices have surpassed $4/gallon in many markets as spot prices approached $2.70 last week, but have since dropped by nearly 30 cents as resupplies begin to arrive. With the RVP transition and a busy refinery maintenance schedule already behind us, and the most speculative bets ever for this time of year on gasoline prices going higher, it’s becoming easier to see why spot gasoline prices may have more room to fall in the coming week. From a technical perspective, if May RBOB can’t hold above $2 this week, it looks like we could see attempt to sell-off closer to $1.80 in the next few weeks.

Some options for reading while we await the inventory reports:

- EIA: It took 11 years for Tiger to win another major the US to break its annual energy consumption record set in 2007.

- Despite falling rig counts in Q1, US shale oil production is still poised to reach new record highs in May, according to the EIA’s drilling productivity report.

- Dallas FED: How online shopping and employment trends have changed inflation patterns.

- The fight for market share: Saudi Aramco is taking a $1.2 billion stake in a Korean refining and shipping conglomerate, giving the Kingdom a guaranteed outlet for more of its oil exports.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Apr 15 2019

Energy Futures Stumbling Out Of Gates

Energy futures are stumbling out of the gates to start the week with most contracts down 1% or more overnight as the global oil supply outlook that seemed so bullish a week ago suddenly appears to have spare capacity starting to build.

Reports that Russia is considering ending its oil production cut agreement with OPEC to gain back market share from US exporters is getting credit for the early selling this morning, although the interview referenced makes it clear no decisions have been made. Right on cue, the EIA Published a note this morning highlighting the surge in US oil exports in 2018, with Asia the largest regional destination, while Canada remains the largest single importer of US crude.

In addition, Iranian exports are still looking for a home as buyers shy away now that the exemptions to US sanctions are set to expire, adding more supply capacity to the world market.

This looks like it could be a pivotal week for gasoline prices as the last of the winter-grade barrels stop pricing for the season, and futures are close to breaking the bullish trend-line that’s been in place since January. If that trend breaks, and last week did mark the seasonal top, there’s a strong case to be made for gasoline prices to lose another 20 cents in short order.

Money managers added to their net-length in WTI for a 7th straight week, and for a 13th out of 14 weeks to start the year for Brent. The enthusiasm, though long in duration, is a little light in volume as both contracts are just now reaching their 5-year average for bets on higher prices from the large speculator category of trader.

After a 2 week dip into net-short territory, money manager holdings of ULSD have returned to a net-long position. RBOB meanwhile has the most speculative action – relative to seasonal norms – as those holdings remain above the 5 year seasonal range for a 5th straight week.

Producers meanwhile seem content to sell into the strength in prices, with swap dealer net-short positions in WTI increasing for an 8th straight week.

Baker Hughes reported 2 more oil rigs were put to work last week, a 2nd straight increase after 6 consecutive weekly declines suggesting that higher prices may stabilize drilling activity.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Apr 12 2019

Energy Futures Back On The Move

Energy futures are back on the move higher to start Friday’s session, wiping out most of their reversal Thursday losses in overnight trading. After leading the way higher for most of the year, RBOB futures are suddenly the weakest link in the energy chain, sparking calls for a seasonal top in gasoline prices.

Positive Chinese trade data is getting credit for the early move higher in stocks, along with a mega-deal in the oil patch, and the correlation between US equities and oil prices remains strong as the two asset classes trade in lock-step.

Was that it? Thursday’s reversal and today’s early lagging are sending warning signs that the spring gasoline rally may finally be coming to an end. Refiners are returning from planned and unplanned maintenance, and reports are surfacing that gasoline shipments from Asia are on the way to help heal the tight supply situation along the West Coast. While the momentum may have been lost this week, we’ll still need to see RBOB futures drop back below the $2 mark before the upward trend is broken.

Kind of a big deal: Chevron is buying Anadarko Petroleum for $33 billion as “big oil” once again starts flexing its muscle again, a sign that the recovery for upstream producers has reached the next level. Contrarians will suggest this type of a deal may be a sign of a pending market top, as the enthusiasm required for this large of a transaction can only happen when optimism is peaking.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Apr 11 2019

Reversal Thursday In Effect For Energy Futures

Reversal Thursday is in effect for energy futures as prices pulled back overnight after a strong Wednesday showing that saw gasoline prices surge another 7 cents/gallon, and most other contracts reach fresh 5 month highs. There’s a bit of a tug-of-war going on between the energy reports this week with yesterday’s OPEC & DOE reports showing bullish inventory figures, while today’s IEA report is more bearish on demand. While today’s pullback was probably overdue given the recent price run-up, we’ll need to see the losses double if the upward trend is to be broken.

Lost in the noise of yesterday’s price rally: US refinery capacity increased by 158mb/day last week according to the DOE’s estimates, the equivalent of adding a new average-sized refinery. That change is likely due to new projects completed to increase rates during the spring turnaround season, and brings the total US refining capacity to a new all-time high north of 18.7 million barrels/day.

This week marked the first time US gasoline stocks fell below their seasonal 5-year average since the aftermath of Hurricane Harvey, a truly remarkable change from the all-time high levels we saw less than 3 months ago.

The OPEC monthly report showed a decline of more than 500mb/day of production from the cartel as Saudi Arabia (down 324mb/day for March) continued its intentional cuts, while Venezuela (down 289) continued unintentionally reducing its output. It’s worth pointing out that Libya’s production did surge by almost 200mb/day in March, but that output is now at risk as their latest version of a civil war is taking place in April.

The IEA’s monthly oil market report showed similar declines in supply, but also gave warning on the demand side of the equation, noting that OECD oil demand fell for the past 2 quarters, primarily due to weak consumption in Europe and suggesting that the higher price environment may act as a headwind to future growth. The IEA’s report also noted a sharp drop in global refinery runs in March, largely due to the numerous unplanned outages in the US, on top of a busy turnaround season.

Market Talk
Wednesday, Apr 10 2019

Inventory Declines And Refinery Issues

Inventory declines and more refinery issues have gasoline futures trading at 6 month highs today, with some regional US markets seeing their highest levels in a year. Gasoline futures are trying to drag crude and diesel prices on another rally, but so far are being met with a bit of apathy from the other energy contracts.

There were unconfirmed reports Tuesday of 2 more fires at Gulf Coast refineries, and Midwestern gasoline stocks were reported to have reached their lowest April levels in more than 5 years, after reaching record highs just 2 months ago. Both of these issues seemed to help encourage more strength in regional basis differentials, in addition to the gains in futures.

Adding to the upward momentum overnight, late Tuesday afternoon the API was reported to show a 7 million barrel decline in gasoline stocks last week, which appears to be driving the overnight strength in gasoline prices (both outright and spreads). Diesel inventories were said to drop by 2.4 million barrels, while crude oil inventories increased by 4.1 million barrels. The DOE’s weekly report is due out at its regularly scheduled time this morning.

While the spring rally has pushed near-term prices for the big-4 petroleum futures contracts (WTI, Brent, ULSD & RBOB) to their highest levels in the past 5-6 months, forward values have actually declined in some cases as short term supply concerns give-way to longer term economic growth concerns, and perhaps due to producers using this rally as an opportunity to increase their hedge positions on expected output in coming years.

Fake News? The Business Times of China reported that a fire at the Phillips 55 refinery was contributing to $4 retail gasoline prices in California. Not sure if that’s a witty poke at the refiner’s operating performance or just a bit of lost-in-translation. To be fair, if I was reporting on Chinese refineries, it’s safe to say my pronunciation would miss the mark by more than 11.

Today’s interesting read: A $254 million loss in Trafigura’s trading book provides the latest in a long list of examples of how complex hedging physical commodities can be.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Apr 9 2019

Door Open For Further Gains

Energy futures are pulling back slightly after reaching fresh highs for the year overnight, as it appears doubts over Russia’s cooperation with OPEC is outweighing concerns over the fighting in Libya in the ongoing battle for trader’s attention. The push to new highs for each of the big 4 petroleum contracts this week leaves the door open for further gains from a technical perspective, and with the driving season still in front of us, there may be enough seasonal momentum still left for one more push higher before the “Sell by May and go away” crowd returns to the market.

RBOB gasoline futures broke above the $2/gallon mark for the first time in nearly 6 months overnight, marking a 73 cent/gallon increase from the low-trade on the first trading day of the year. If RBOB futures can settle above that $2 mark, the next natural stopping point on the chart looks to be October’s high of $2.15/gallon.

While gasoline prices across most US spot markets have had similarly strong spring rallies, the West Coast continues to outpace the rest of the country, with California prices trading some 60-70 cents higher than the Gulf & East Coasts (charts below). A handful of refinery issues, and limited resupply options due to California’s unique specifications have combined to push spot prices up by more than a dollar/gallon so far this year.

ULSD prices have finally joined in on the action after underperforming gasoline for most of the year. Diesel futures face a key test this week at the 200 day moving average, which was breached briefly overnight before prices pulled back. A break of that resistance could allow another 20 cents of gains for diesel near term.

Today’s interesting read: The Dallas FED released a new study on the change in global oil pricing relationships, specifically how quality-based price differentials have eroded due to refinery modernization and changing crude supply dynamics, saying “In essence, complex refiners arbitraged away much of the quality-related price differential that previously existed.”

The EIA’s Petroleum Supply monthly report sheds further light on the changing crude supply dynamics, detailing the record setting year for US oil producers and highlighting long term output changes by state.

CLICK HERE for a PDF of today's charts.

Market Talk
Monday, Apr 8 2019

Energy Futures Moving Tentatively Higher

Energy futures are moving tentatively higher, reaching fresh 5 month highs to start the week as ongoing refinery issues, supply concerns from OPEC members, and optimism over a US-China trade deal continue to outweigh concerns of an economic slowdown. Although the gains so far are minimal, the break above technical resistance leaves the door open for much higher prices in the coming days.

A strike at Europe’s largest refinery is reported to turn one of the largest sellers in the region into a buyer, which seems to be providing some upward pressure on product prices. Oil meanwhile appears to be getting a boost from reports of more fighting in Libya, although so far the country’s exports – which have been in a constant state of flux for most of the past 8 years - are not immediately at risk.

The latest oil-market news from the Venezuelan saga are reports that output dropped below 1 million barrels due to power outages last month, and the US announced new sanctions on specific vessels to try and cut off export flows to Cuba.

Baker Hughes reported an increase of 15 oil rigs working last week in the US, snapping a 6 week stretch of declines and marking the largest increase since last May. Texas led the way with an increase of 8 total rigs put to work last week, snapping a streak of 12 consecutive weeks of lower figures.

Money managers continue to be cautiously bullish on oil prices, increasing their net-long holdings in both Brent and WTI for a 5th straight week, although the total length is still well below year-ago levels. The speculative category of trader remains fairly bullish on gasoline prices, with net length holding above its 5-year seasonal range, although there was a slight decrease in holdings last week. Those large speculators remain bearish diesel however with ULSD contracts holding in net-short territory (betting on lower prices) for a 2nd week, reaching the lowest levels in nearly 2 years.

CLICK HERE to download a PDF of today's charts.

Market Talk
Friday, Apr 5 2019

Energy Futures Continue To Tread Water

Energy futures continue to tread water for a 2nd day after reaching highs for the year earlier this week. Brent crude broke above $70 for the first time in nearly 5 months during Thursday’s session, marking a 30% increase for the year so far, before pulling back to hold in the mid-$69 range. The $70 mark does look like it could offer some resistance on the chart as an old support level from last August now reverses roles , but if Brent can break through $70, there’s not much on the charts to prevent another $5-10 of gains.

The most notable price action this week has come on the West Coast, where basis values for California gasoline grades have surged to 40 cents over futures prices due to ongoing refinery issues. Oddly enough, the state’s inventory reports show that it’s diesel production that appears to be suffering due to those outages while gasoline output remains in average territory, yet cash markets for distillates are only trading about a dime over the screen.

The March non-farm payroll report showed 196,000 jobs added in March, while the headline unemployment rate (3.8%) and “U-6” rate (7.3%) both held steady for the month. Stock and energy futures both ticked up slightly in the minutes following the report as it seemed good enough to allay fears of a pending recession, while not being so good that it would encourage the FED to reconsider its plan to stop raising interest rates this year.

The Dallas FED seemed to concur with the nationwide labor report in its economic activity report released yesterday. Employment in the state has stabilized since a small downturn late in 2018, but slower activity in energy-related fields continues to be a drag on growth.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Apr 4 2019

Mixed Bag For Energy Markets

It’s a mixed bag for energy markets to start Thursday’s trading with Brent and ULSD futures moving higher, RBOB sliding into the red, while WTI holds near break-even on the day. Wednesday’s DOE status report had a little something for the bulls and the bears, which may be contributing to the cautious start when charts suggest more strength ahead, particularly for crude oil prices that have broken through longer-term technical resistance levels this week.

Refined product inventories continue their seasonal decline, with Gasoline most notably falling from all-time high levels in January, to the lowest March levels in more than 3 years last week. Refinery runs that have dropped from record highs to below-average levels in the past 3 months – specifically the rash of unplanned maintenance issues – appear to be the key driver of those inventory declines as both demand and export flows remain relatively flat.

The EIA’s estimate of US Oil production reached a new all-time high last week at 12.2 million barrels/day, which is 1.7 million barrels more than what was pumping this time last year and nearly 3 million barrels/day more than the previous 5-year seasonal average. Crude oil inventories had a large increase on the week, but remain at average levels for this time of year thanks to the robust export activity taking place primarily along the gulf coast.

Today’s interesting read: earlier this week many were in awe at the profits reported by Saudi Aramco. Lost in the boring details was news that the kingdom’s largest oil field is pumping much less than pretty much anyone believed.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Apr 1 2019

Energy Futures Starting 2nd Quarter On Strong Note

Energy futures are starting the 2nd quarter of 2019 on a strong note, aided by reports that OPEC production dropped to its lowest level in more than 3 years last month, and by US equity markets that are pointing to a strong open on the back of positive news from China. WTI is leading the charge, touching a fresh 4.5 month high at $60.92 overnight, while Brent and refined products are still holding below the highs set last week.

While global concerns on oil supply and economic activity may continue to dominate the headlines and price action in the new quarter, a pair of legal battles may have longer term impacts on US oil supplies. Over the weekend, a federal judge ruled the President’s order to open drilling in the Arctic was unlawful, following a new order issued to allow for the Keystone XL to be built after more than a decade of wrangling.

Saudi Aramco published its income for the first time ahead of a bond offering, listing net income last year north of $111 billion, and free cash flow of $86 Billion, dwarfing the world’s largest publicly held oil companies, although trailing many on a per-barrel basis given its heavy tax burden.

Baker Hughes reported a 6th straight week of declines for oil rigs in the US, making Q1 2019 the largest quarterly decline in 3 years for the rig count. Texas continues to lead the move lower, marking a 12th consecutive week of declines for the state’s rig count. The Dallas FED published its quarterly energy activity survey last week and noted that activity ticked up slightly in Q1, after dropping sharply during the price plunge of Q4, 2018. West Texas is rapidly transitioning from a shortage to an excess of pipeline takeaway capacity for oil, which combined with the recent price recovery could be enough to see the trend of lower rig counts come to an end in the next few weeks.

Money managers continued to jump on the spring break bandwagon, adding to net-long positions in WTI, Brent and RBOB contracts last week, while ULSD dropped to a net short position for the large speculative category of trader. Perhaps most notable in the changes was that RBOB net length broke above its 5-year seasonal range as of the data reported Friday, which is compiled as of last Tuesday, which means a large number of energy speculators got to experience the spring gasoline rollercoaster with a 15 cent drop in RBOB prices over the next 2 days. The funds’ reaction to those price swings in this week’s report may give a good indication of the staying power of this year’s spring rally as retail prices in several parts of the country approach or surpass $3/gallon.

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