Monday’s Rally Has Broken The Downward Sloping Trendlines

Market TalkTue, Aug 13, 2024
Monday’s Rally Has Broken The Downward Sloping Trendlines

It’s a mixed bag for energy markets to start Tuesday’s session with RBOB gasoline futures trying to lead the complex lower, down 2 cents in the early going, while diesel prices cling to small gains after a big Monday rally.

As is the case with most sharp price rallies in the past year, middle eastern tensions took much of the blame for Monday’s big jump as the US warned of another imminent attack by Iran, and the speed of the move suggests that we were witnessing more short covering by hedge funds that were re-thinking their positioning after the panic selling from a week ago.

From a technical perspective, Monday’s rally has broken the downward sloping trendlines that have been in place on the weekly charts since the start of July, leaving room for more upside near term, but short term indicators remain mixed suggesting we’ll be in for a period of sideways trading for the next few weeks.

The IEA held its demand outlook stead in its August oil market report, but suggested growth below 1million barrels/day for 2024 and 2025, less than half of OPEC’s estimates.

The Paris-based agency put an Olympic spin on this month’s report, referring to the recent increase in volatility as gymnastics with economic concerns in China and Japan facing off with middle eastern tensions for control of the price action. The agency’s forecast suggests that OPEC & Friends will need to not only extend current production cuts, but increase them if they want to off-set the strong increases in oil supplies coming online elsewhere in the world. The report also highlighted the weakness in refining margins, and noted how those economics are already forcing reduced run rates in several markets.

An arb window opening? Group 3 diesel values climbed 7 cents above their US Gulf Coast counterparts this week, marking the first time all year that the “up/down” arb to ship diesel north has been profitable vs pipeline costs. While Gulf Coast values have slumped to double digit discounts in the past week, a spike in demand in the group as trucks from the neighboring Chicago region drove west to avoid high prices and limited supplies during the Exxon Joliet refinery downtime looks to be the driver of relative strength, with harvest demand is still a month or more away. Inventories in the region remain ample however, and now that Joliet is back online, this brief bit of respite for shippers who’ve grown weary of discounted midcontinent prices and negative shipping economics this year may soon come to an end.

Tropical storm Ernesto was named Monday and is expected to reach hurricane strength later this week. Forecast models all point to a north easterly track that keeps the storm well away from the US coast. The Come By Chance refinery in Newfoundland that was recently converted to renewable diesel production is currently in the forecast cone, but given the oversupply of RD in most markets these days, any impact to production should that storm make a direct hit on the plant would be hard to notice.

Monday’s Rally Has Broken The Downward Sloping Trendlines