Spring Breakout Rally Sprung For Energy Prices
The Spring breakout rally has sprung for energy prices with futures moving higher for a 4th straight day, showing strong momentum after technical resistance was broken earlier in the week. Most contracts are trading at fresh 3-month highs this morning, and the charts suggest there’s plenty of more room to run to the upside.
Strength in equity markets continues to at least appear to be helping energy prices find a bid as the correlation between the two asset classes remains strong, and the US/China trade talks appear to be progressing.
Unplanned Refinery maintenance, whether based in mechanics or economics, seems to be the other major theme helping prices rise with at least a dozen different events reported in the past 2 weeks of record setting cold, and record setting weakness in gasoline margins for some parts of the country. Yesterday, PBF announced in an earnings call that it too would be accelerating its maintenance schedule in an attempt to slow down now in order to be running full strength when margins are expected to improve later this year.
For a reminder on the seasonal nature of energy prices in general, and gasoline prices in particular, look up any of Walter Zimmerman’s writings on the subject. This 5-year old interview published by the CSP daily news seems particularly relevant as we wonder how much higher prices can run this spring.
“Gasoline price trends are extremely seasonal. Averaging out the last 30 years of spot gasoline futures (from leaded, to unleaded, to MTBE, to RBOB), one finds that the average winter-to-spring price move has been a 57% increase in spot contract value. By Q4, everyone is typically bearish on gasoline because prices have been under downward pressure since Q2. Over the years we have observed that the more severely gasoline prices are pushed lower into Q4, the more vibrant the rally into Q2.”