Energy Futures Are Seeing A Strong Rally To Start Friday’s Trading With Big Rallies In Risk Assets Around The Globe

Energy futures are seeing a strong rally to start Friday’s trading with big rallies in risk assets around the globe and some technical buying after the heavy selling earlier in the week both seeming to contribute to the big bounce. Chinese demand guesses continue to be a talking point as well, although it’s becoming even less clear whether or not the world’s largest oil importer is actually relaxing or not.

Hope springs eternal: Just a week after the FED chair said it was “very premature” to talk about when central bank would pivot from its tightening monetary policy, US stocks had their best daily rally in 2.5 years betting the FED would pivot because inflation was only .4% for the month of October, and 7.7% for the trailing 12 months. That euphoria continued overnight in international markets and seems to have encouraged some energy traders to jump on the “risk on” bandwagon this morning, even though the correlation.    

While the optimists are clearly in control at the moment, don’t be surprised if more demand fears creep back in soon after reports that Chinese refiners have taken an unusual step of asking Saudi Arabia to reduce their oil volumes in December as consumption has slowed. Those reports seem to rain on the parade of the COVID relaxation rumor crowd, who were acting an awful lot like the pivot prophets are now until reality set in. 

Big drops in diesel outright prices, time and crack spreads had pushed several contracts to key chart support levels that could have sparked another wave of selling, but so far technical support layers have held up and the bulls have passed their first big test.  We’ll have to see if that proves true for the record-setting basis values in NYH that dropped almost 20 cents Thursday after reaching a record premium of $1.25/gallon earlier in the week.  

Gulf Coast diesel is now trading more than 27 cents below December ULSD futures, and is still trading nearly $1.30 below prompt values in New York, which has pushed values for shipping diesel along colonial to a record high of 15 cents/gallon. That rapid increase suggests PADD 3 refiners may have temporarily run out of better alternatives than braving the backwardation along the East Coast to get rid of their excess distillates.

Terminals across Florida are reopening as power has been restored following Hurricane Nicole’s landfall. There are no reports yet of major damage to any port or tank infrastructure. 

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