Energy Prices Survived A Big Wave Of Selling Early Monday Morning, And Have Been Rallying Ever Since

Energy prices survived a big wave of selling early Monday morning, and have been rallying ever since. Conflicting reports about OPEC’s plans seem to be the main driver of the big swings in prices, with a WSJ report that the cartel was planning to increase output sending prices sharply lower Monday morning, only to see those losses turn to gains after that report was denied.   The sharp rally puts the energy complex into more neutral technical territory after it looked like we were on the verge of a major breakdown in prices this time yesterday.

We’re two weeks away from the latest potential rail strike, which is looking more likely after another union voted to reject that agreement made back in September when the country thought a strike had been avoided. The impact of a strike, if a new deal isn’t reached, or congress doesn’t step in to prevent one, would be far reaching and touch just about every segment of the US economy.  For fuels, the biggest concern is the impact on ethanol supply, which could quickly translate to the gasoline version of water water everywhere nor any drop to drink as blend stocks would be stuck in tank without their mandated alcohol additive.  You may note the irony that the current RFS legislation was born from the claim that ethanol could help protect the country’s fuel supplies in the Energy Independence and Security Act of 2007, only to see that fuel become the potential cause of shortages today. 

Some are also pointing out that the rail strike could make diesel shortages worse, an argument that fails to recognize trains haven’t been powered by steam and coal in about a hundred years, and there would be a big drop in demand if some of the country’s largest diesel consumers stop moving.   There is no doubt that some rail-fed markets would feel a strain on diesel supplies if the strike happened, but the impact of delays in ethanol shipments would be much more widespread, given that rail is the primary delivery option for ethanol, vs a supplemental option for diesel. 

The timing is particularly bad for anyone lobbying congress for even more ethanol blending, which is what the API and RFA have jointly agreed to do, which may mean the E15 parade may continue to be poorly attended.  Perhaps the more meaningful part of this unusual alliance between the big oil and big ag (posing as renewables) lobbies is that they’re pushing for a national set of regulations, vs the state by state approach that creates all sorts of unintended consequences as we see today with the LCFS and Cap & Trade programs creating more demand to burn diesel to send renewables across the country rather than being consumed near where they’re produced. 

Spot markets will be closed Thursday and Friday, although futures will be trading both days, with only a Friday settlement, so rack prices can and will change over the long holiday weekend. Last year we saw a huge Black Friday selloff in futures that will no doubt keep traders on edge through their tryptophan slumbers this week. 

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