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.