Energy Rollercoaster Showing Signs Of Manic Behavior

The energy rollercoaster is in full effect this week as a huge reversal Thursday rally wiped out Wednesday’s heavy losses, only to see another round of selling to start Friday’s trading.   If futures settled at current levels they’d still be down more than 30 cents for gasoline and 35 cents for ULSD for the week, even though we had a 20+ cent recovery in Thursday’s session. 

This type of manic behavior can be a sign of a market that’s changing direction, as the “weak hands” give way to the “strong hands” who are in the market for the long haul, but the big question is if these huge swings are marking an end to the 7-month bull rally that more than doubled fuel prices, or an end to the 1-month pullback that cut them down by more than $1?   For now, short-term charts continue to give slight favor to prices moving lower – even though it’s tough to make a fundamental argument for more selling when you look at the inventory charts below.

US fuel inventories and days of supply for both gasoline and diesel are below the low end of their seasonal ranges, despite refineries running near their max in most regions.   Refined products saw a big increase in demand last week, which is largely expected leading up to a major US holiday, but total US petroleum demand is still holding below the levels we saw this time of year in 2019 and 2021. 

The West Coast is bucking the trend of the other US regions, with supplies for both gasoline and diesel above their seasonal averages, even though refinery runs remain well below year-ago levels.

Want to know why Group 3 diesel markets went from the weakest in the country for months to one of the strongest this week?  Take a look at the PADD 2 diesel chart below.

Equity markets gave up their overnight gains after the June payroll report, which showed another strong month for job growth in the US.   For those that remember the QE years of a decade ago when bad economic news was good for the stock market because it meant the FED would print more money, it’s easy to understand why good news on the labor front is bad news for markets because it all-but assures the FOMC will continue raising rates aggressively.   While energy markets were already in the red prior to the report, they’ve given up another couple of cents afterward in sympathy with stocks.

Charts from the DOE’s weekly status report included.

Click here to download a PDF of today’s TACenergy Market Talk.