Energies are trading lower this morning after the API forecasted a crude inventory build of almost 2 million barrels, a gasoline build of 2.3 million barrels, and a diesel build of 2.3 million barrels. The forecast also included a draw of 1.4 million barrels at Cushing, Oklahoma, the delivery and pricing point for WTI crude oil. Crude inventory at Cushing has been tight most of the year and is approaching a key operational level of 20 million barrels. If inventory at the storage hub drops below 20 million barrels, there is concern about the quality of the remaining oil, and there is potential to fall below minimum operating levels. Low inventory at Cushing can add strength to crude futures.
It's Fed decision day! The Federal Reserve is expected to cut interest rates today for the first time since March 2020, which will provide relief for consumers after rates have remained historically high for the last year. Fed Chairman Jerome Powell will make the announcement today at 1 pm CT, and interest rate traders are still projecting a 50-point cut. Since a larger cut is now expected, a 25-point cut could be bearish on both the equity and energy markets while a 50-point cut should add some strength. For energies, the hope is that lower rates will lead to increased consumer spending which could spur demand for energy products.
The LNG pipeline in La Porte, Texas continued to burn yesterday afternoon but is expected to finish today. The pipeline explosion paired with production outages in the Gulf is helping strengthen natural gas prices at the front of the board. Lead month natural gas futures prices remain near the highest price since early July. Dutch natural gas is trading near the lowest level in seven weeks as storage in Europe is full for this time of year, and Norwegian gas flows to the UK and Northeast Europe are expected to increase by 13% today after the conclusion of seasonal maintenance.
The EIA is expected to report a 1.98-million-barrel build in U.S. propane stock, while an OPIS poll called for builds between 1.2 and 2.6 million barrels.
Crude
- Thousands of pagers used by Lebanese group Hezbollah exploded simultaneously yesterday, fueling escalation fears between the group and Israel.
- The WTI 12-month calendar spread is backwardated $3.75 this morning, mainly due to supply concerns propping up lead months, after flattening to just above $2 last week.
- The Brent/WTI spread of $2.56 this morning is sitting near the weakest level over the past year.
- As of 8:45 am CST: Brent crude oil down $0.40 to $73.30, US dollar index down $0.182 to 100.385 while the nearby e-mini S&P 500 futures contract is up 2.50 at 5641.50.
Diesel
- API forecasts a diesel build of 2.3 million barrels.
- Midwest diesel basis values should trend higher through mid- to late-October as refineries enter maintenance season.
- Group 3 and Chicago cash diesel prices are cheaper than the five-year historical average, however, Chicago diesel basis values are higher than the five-year average.
Gasoline
- API forecasts a gasoline build of 2.3 million barrels.
- Midwest gasoline basis values should trend higher through mid-to late-October as refineries enter maintenance season.
- Group 3 and Chicago cash gasoline prices are cheaper than the five-year historical average.
Propane
- Conway is trading at .6800 while Belvieu is trading at .6750.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7251.
- Conway propane is trading at 40% to WTI.
Natural Gas
- Dutch natural gas is up almost 2.5% this morning reversing some of yesterday’s losses after trading down to a seven-week low yesterday.
- 16% of U.S. Gulf of Mexico natural gas production is still offline due to Hurricane Francine. (Reuters)
- U.S. natural gas futures are trading at the highest level since July 9.
