ULSD And RBOB Took Out Another Layer Of Technical Resistance In Tuesday’s Session
So much for the sideways pattern. ULSD and RBOB took out another layer of technical resistance in Tuesday’s session, and made short work of following through to their next targets with 10 cent gains in the past 24 hours. Just a few days after making a run at $2.50, diesel prices are now less than a penny away from reaching a new 7 year high at $2.6080, with another big move higher looking possible if that resistance can also be taken out.
Besides the technical strength, it appears that diesel prices are also getting a boost from winter storms hitting the East Coast, based on the strength in calendar spreads and natural gas prices in the past few days. That should provide some sense of relief to those hurt by high diesel prices that this won’t last for an extended period of time, but is also a sign that near prompt prices could see a severe spike if another polar vortex arrives, which could fulfill the technical targets closer to the $2.80 range. Short term indicators are also moving into overbought territory, so there should be a swift correction once this latest surge subsides.
So far the market continues to be able to shrug off some bearish fundamental indicators for both refined products as the API reported another huge build in gasoline inventories last week of nearly 11 million barrels, while distillates added another 3 million barrels. The DOE’s weekly report is due out at its normal time this morning, and based on the API and anecdotal evidence from fuel suppliers around the country, more large builds seem likely as last week marked the traditional trough of the winter demand doldrums.
You can also see signs of that weak demand in Midwestern basis markets that have seen diffs plummet over the past two weeks as those regions slog through their annual January temperature and demand freeze. In these cases, the strength we’re seeing in calendar spreads tends to push basis spreads even lower as cash markets will need to offset the relative increase in futures to attract incremental buyers. Rack markets around the country are also showing signs of capitulation with several major markets that were showing large premiums to their local spot market now offering discounts as suppliers appear to have forgotten (again) what happens in January every year. (see the charts below)
Reminder that Monday is MLK Jr. day, and while futures will trade throughout the day, there will not be a settlement posted for NYMEX contracts, and spot markets won’t be assessed, so most prices posted Friday night will carry through Tuesday.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.