PADD 1 Refineries Escape Sandy Without Major Impact

On October 30, 2012 by TradingDesk
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Damage assessments are underway as Sandy continues to churn through the northeast US. While the power losses are widespread and flooding may keep New York City on lock down for some time, it does appear that the PADD 1 refineries escaped without any major impact, and some operations are expected to be back online today.

There has been no word yet from Colonial pipeline on when they will be able to restart their northern line, and it will likely depend on how soon the terminals which were shut down are able to come back online. The irony, is that Colonial was forced to shut, not because of the storm, but because it’s full, and simply didn’t have a home for its product once NE terminals went offline. The reaction in gulf coast cash markets was severe, with most major product grades losing 2-3 cents in basis once the largest outlet for product was taken off the table.

Now that it appears the supply disruptions will be limited, the question is, how big of a demand impact will there be. Estimates range from 2-3 million barrels/day of refined product demand will be lost, nearly 20% of the total daily burn in the US. Refined products reversed sharply yesterday, and are following through with more selling today. Charts favor lower prices, and while it may be days before all the damage is known, it does appear that fundamentals will suddenly support a selloff as well.

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Electronic Trading Continues Despite Hurricane Sandy

On October 29, 2012 by TradingDesk
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All eyes are focused on Hurricane Sandy, with dire predictions for many residents of the East Coast. The storm has already prompted the first unscheduled market-wide shutdown of US Equity markets since September 2001. While the CME shut down the Nymex floor trading, electronic trading (where the majority of trading occurs anyway) is on a normal schedule, and action has been brisk.

RBOB is leading gains, the November contract is up 7 cents at the moment, while HO is up a nickel, as most PADD 1 refinery production is shuttered or reduced in preparation for the storm’s landfall. While a sharp price spike is possible – and perhaps likely – typically storm-induced moves are short lived. It’s impossible to say what the total impact of this storm will be, but historically storms along the east coast hurt refined fuel demand more than they impact supply. That said, short term outages all along the coast due to power loss and flooding are likely.

Charts continue to give slight favor to lower prices in the near future, but with all the uncertainty surrounding trading this week, a very full schedule of economic data, and a little election next Tuesday, volatility may be our only guarantee.

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Hurricane Sandy Stirs Rising Tide On RBOB Futures

On October 26, 2012 by TradingDesk
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RBOB futures are leading the energy complex higher this morning, the NOV contract is up a nickel on the day and 18 cents since Wednesday morning, as hurricane Sandy eyes landfall next week in the heart of the PADD 1 refining zone and New York Harbor delivery point. Q3 GDP for the US has helped the rally pick up steam in the past 20 minutes, as the 2% print – while historically considered a modest number at best – beat many expectations, and reversed heavy selling in the stock market.

While it’s still too early to say what impact the storm, already predicted to be the worst to hit the US East Coast in 100 years, will have on energy supplies, it does appear that short term disruptions due to flooding and power loss will be widespread, with everyone from the Carolinas north to Boston under the gun.

Technical studies continue to favor lower prices in the near term, but with a major storm bearing down on the delivery point for NYMEX product futures, and many traders’ natural reluctance to be short ahead of a weekend, I’d expect the buying to continue for at least another day.

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Energy Futures Trying To Rally

On October 25, 2012 by TradingDesk
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Energy futures are trying to rally again this morning, after yesterday’s bounce was wiped out by slumping stock markets and weak demand estimates from the DOE. While RBOB did settle lower for the 10th straight session – the first time that’s happened in the 25+ year history of gasoline futures – it managed to bounce off of support near $2.57 for a second straight day. Likewise, HO bent – dropping to its lowest level in 3 months – but did not break, bouncing off of its lows to finish with losses of less than a penny.

Technical studies continue to suggest lower prices are coming, but given the oversold condition, recent bounces off of support, and the fact that it’s Thursday, don’t be surprised by a sharp reversal today. The big question is can it be sustained.

Hurricane Sandy made landfall in Cuba overnight as a Category 2 storm, and models are projecting an increased threat to the US East Coast as early as Monday. While refining activity is limited in the area – only a direct hit on Philadelphia is likely to have a sustained impact on PADD 1 operations – local disruptions due to power outages and flooding are possible from northern Virginia to Boston.

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DOE Weekly Report

On October 24, 2012 by TradingDesk
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The Picture Turns Bearish For Energy Contracts

On October 24, 2012 by TradingDesk
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Refined products are up slightly this morning, following a heavy week of selling, led by a $1 bounce in Brent crude after the Chinese Purchasing Manager’s Index (PMI) which had its best reading in 3 months, although it still showed contraction.  Gains have been limited by the Euro-zone PMI report, which came in at the lowest level in over 3 years.

The technical picture has turned bearish across the board for energy contracts, with most indicators suggesting lower prices to come, although most do show an over-sold condition, suggesting a short term corrective bounce is likely.  RBOB has critical chart support layered from $2.45-$2.55.  While this area was the launching point for RBOB’s last 2 major rallies, a break here puts sub-$2 prices in play.   Meanwhile, if HO falls below $3, the next target is in the $2.85 range.

The FOMC will have an announcement this afternoon, although markets are largely ignoring it – for once – as it appears unlikely that the FED will follow its most recent major quantitative easing announcement with any substantial changes to its policy.

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Refined Products Futures Moving Higher

On October 19, 2012 by TradingDesk
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Refined product futures are moving higher this morning, taking the lead of European grades, and after refinery blips and a 3 day shutdown of the Keystone pipeline stanched the week’s selling yesterday afternoon. In a week filled with indecision across the barrel, WTI has been most impressive, settling with a $.25 or less change for 5 straight sessions, which hasn’t happened in over a decade. RBOB charts continue to point lower, although oversold studies do suggest we’re due for a bounce. After 5 straight days of losses, HO too is due for a corrective bounce, but its charts still look more supportive and a sustained move higher can’t be ruled out.

On the 25th anniversary of Black Monday, when the DJIA dropped nearly 23% in a day. Coincidentally, the Intercontinental Exchange’s (ICE) will hold open outcry trading in the famous pits for the last time today as electronic trading continues to squeeze out the human element from our markets. As one broker put it this morning: Now instead of crying like the Duke brothers, “turn the machines back on”, we are often wishing they would turn the machines off!

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Fall Rally is Over

On October 18, 2012 by TradingDesk
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Decelerating Chinese GDP and a decreased forecast for Brent prices from Goldman Sachs are pushing energy futures lower, the first time this week that the major contracts have been in agreement on direction.

RBOB is leading the way lower again, breaking through its October lows, reflecting both a major unwind in time spreads (The Nov/Dec spread is down 16 cents in the past 2 weeks) and plunging cash markets across the country. Technically, RBOB has moved into bearish territory with the next major piece of support sitting 20 cents below current levels.

Meanwhile, diesel prices are showing relative strength, although charts are slowly signaling a top may be in for HO. The DOE report yesterday showed that diesel stocks across the US remain tight, particularly in PADD 1, proving that the export market is more than able to handle the excess production of US refiners. Seasonally, we should see HO peak somewhere around October, and if today’s selling picks up, it may just be that last Friday’s trade at $3.2650 was it. Although it’s been less dramatic than gasoline, cash markets for diesel have also been slipping this week, as traders try to grab a premium for prompt barrels along a steeply backwardated curve, adding strength to the argument that our fall rally is over.

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DOE Report

On October 17, 2012 by TradingDesk
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Mixed Bag of Trading

On October 17, 2012 by TradingDesk
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In what’s becoming a theme in energy markets, we have another mixed bag of trading today. WTI is pushing higher, despite a 3.7 million barrel build in supply reported last night by the API, and a falling Brent contract. HO is down a penny, and RBOB is trading either side of unchanged. While the complacency in technical studies largely remain, signs of the contracts rolling over into their typical seasonal bearish pattern.

While the futures are stuck in standstill, cash markets in the US continue to put on a show. Gulf Coast gasoline prices are down 28 cents in the last 5 days, a 9% drop that seems impressive, until compared to the Chicago and West Coast markets, which have both witnessed 60 cent drops during the same time-frame, as supplies shift from a summer-grade famine, to a winter grade glut. Meanwhile, Group 3 ULSD Prices have also dropped 30 cents in the past week, as agricultural demand comes to a screeching halt, after the record drought set harvest in motion several weeks early.

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