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The Energy Complex Is Selling Off Once Again This Morning As Gasoline Futures Lead The Way Lower

Thursday, May 19 2022
Market Talk

The energy complex is selling off once again this morning as gasoline futures lead the way lower. The prompt month RBOB contract is currently showing 3.5% losses as the oils (heating and crude) trail closely, trading lower by 2.5%. Futures traders seem to be shrugging off the report published by the Department of Energy yesterday which showed a sizeable drawdown in national gasoline inventories. This latest drop in stockpiles only exacerbated the tight gasoline landscape, especially in PADD 1, which contains the New York market, the physical delivery point of the globally traded futures contract.

Market participants could be referencing the increase in crude production as their justification for selling oil in the middle of a shooting war. Even though national oil inventory is still at 5-year seasonal lows, optimism surrounding the steadily increasing number of active production rigs might be enough to convince some ‘help is one the way’ and/or ‘the worst is over’.

Diesel basis markets were relatively quiet yesterday as some take a wait and see approach to valuing the physical markets. The increase in national diesel inventories, combined with the across-the-board bump in refinery run rates for all PADDs, pushed the prompt-second month HO spread below 10 cents for the first time since March yesterday.

Technical (technical) breakdown? Momentum trading spurred by a grim global demand outlook and a coincidental(?) drop in equities markets seem to be taking credit for today’s selloff. The ‘big three’ American energy benchmarks are breaking or already trading lower than a few of their respective moving averages, signaling that lower prices may be coming in the short term. If today’s action holds, refined product futures charts show little support between current levels and the $3.30s. Crude oil, on the other hand, has a test at the $105 level but if that’s broken, a drop to $100 seems likely.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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