Mixed Start to the Last Day of the Year

On December 31, 2012 by TradingDesk
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It’s a mixed start to the last day of the year. No deal was reached on budget talks in Washington, and yet US stocks are set to open higher, after 5 straight sessions of losses. Chinese manufacturing data hit their highest level in over a year, and yet most Asian markets are lower. Energy values are down, led by Brent crude, which is off nearly 1%. Volumes continue to be extremely low, and today’s action is more likely to be influenced by book balancing than by any trend.

As we head into 2013, the fallout from the budget impasse will still be the major catalyst for price action. That being said, if hedge funds have reduced their long exposure in commodities by the most in nearly a year, giving them dry powder in case any sort of spring rally does form. Seasonally, IF product prices did bottom out in December, we would expect rallies in the range of 40-50 cents before the spring peak. That being said, if equities continue to melt down, forcing more liquidation of levered commodity bets, expect our summer lows to be tested again very soon.

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DOE Weekly Report

On December 28, 2012 by TradingDesk
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DOE Weekly Report

Energy Prices Vulnerable Should Equities Selloff

On December 28, 2012 by TradingDesk
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Thursday’s price action was all about US budget headlines, with an early warning from congress that a change to the Budget Control Act of 2011 would not be made prior to it taking effect next week sending stocks into a sharp selloff. An afternoon headline that congress would return to session Sunday night, with a full 24 hours to wrap up an issue they’ve failed to resolve in the past 17 months, reversed the course of the market and nearly all of the losses were wiped out. Energy prices followed the equity lead, and ended the day with slight gains.

The government threw the market another curve ball by delaying the DOE report until Friday, so at least traders will have something to look forward to on what is otherwise likely to be another low-volume trading day. The bulls have clear control over the charts for the moment, but the lack of volume and overbought indicators leave prices vulnerable to a sharp selloff should the selloff in stocks continue.

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Energy Prices Surge On Fear

On December 27, 2012 by TradingDesk
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Energy prices surged higher Wednesday, shrugging off a 3rd straight day of selling in US equities, as a fear premium returned to the markets after news of Iranian naval exercises being planned in the Straits of Hormuz, and the arrests of several terrorists in the United Arab Emirates – an important oil exporter and ally to the US – who were planning attacks on oil infrastructure. RBOB led the move higher, settling up 6.5 cents on the day, but may have outkicked its coverage just slightly as it is the only contract in the red this morning.

Technical studies continue to favor higher prices, with both WTI and RBOB on the verge of a major breakout to the upside, while HO is trailing and still has heavy resistance ahead. The fundamental picture is exactly the opposite, gasoline and crude inventories are near record highs for this time of the year in many markets – due to many refiners running their plants at maximum levels, to cash in on strong cracking margins despite sluggish demand – whereas diesel stocks are at their lowest levels in over 5 years. The DOE report should create some volatility at 10am central today, but don’t expect a new trend to form before year end.

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Energy Futures Rallying On Iranian Naval Exercises

On December 26, 2012 by TradingDesk
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After failing to secure any momentum to the downside Friday and Monday, energy futures are rallying today on news that Iran would begin a week’s worth of naval exercises in the Straits of Hormuz. While at this point it seems unlikely that the move will cause any actual supply disruptions, it is another reminder of the vulnerabilities associated with having nearly 1/5th of the world’s traded oil travel through a 20-mile wide piece of water.

While budget discussions in Washington continue to dominate the headlines, and much of the price action in equity and commodity markets, it should be noted that RBOB and HO bottomed out during the last week of 2011, before staging a 4 month rally that gained 97 and 55 cents respectively. While product prices remain range-bound for now, technical studies are moving into bullish territory, and seasonally we would expect prices to find a bottom sometime over the next month or two. $2.80 and $3.07 will provide the first major hurdles for gasoline and diesel futures to clear before any spring rally can begin in earnest.

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Progress Halted

On December 21, 2012 by TradingDesk
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Progress on a plan to avoid the Budget Control act of 2011 was halted last night when a new bill failed to even reach a vote in the US House of Representatives last night. Equity futures sold off immediately, and energy futures have been dragged lower in sympathy. Some view the lack of progress as a relief, because an actual agreement between the executive and legislative branches of government these days may have in fact been a sign that the Mayan calendar was accurate.

If the selling picks up, look for support in HO at $3.00 and $2.95, and in RBOB at $2.70 and $2.66. Volumes are expected to remain very light ahead of the weekend, so expect a choppy day of trade, with the DC debate the only real catalyst for price movement.

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Energy Futures Shrug Off Equities Slide

On December 20, 2012 by TradingDesk
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It’s a quiet morning so far for financial markets, a day after energy futures shrugged off a stock market slide and finished a second day of a strong rally that is causing some to suggest that the lows of last Monday, may just be the seasonal bottom in prices that often comes in December. The light volume changing hands leaves room for debate – as does the mixed technical outlook. That being said, RBOB and HO are now a dime higher than they were Monday morning, and gulf coast gasoline grades are now 25 cents higher, as basis values recover from record lows.

RBOB will need to break above $2.75, and HO above $3.05 before technical studies will begin to confirm that a bottom has been put in for the winter, otherwise, given the light volume and relatively tight trading ranges seen this month, the day to day movements could be classified simply as “noise”.

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DOE Weekly Report

On December 19, 2012 by TradingDesk
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US Equity Markets Break Out to Highest Levels In Months

On December 19, 2012 by TradingDesk
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US equity markets broke out to their highest levels in over 2 months yesterday, and the EUR/USD currency pairing is at its highest level since May, largely attributed to optimism that the budget drama in Washington will be solved before mandatory tax increases and spending cuts take place Jan. 1. Energy prices had shrugged off the rallies for most of the past week, but have now jumped on the bandwagon and are testing upside resistance in an attempt to end the year on a strong note. As we stand at the moment, RBOB is up 3 cents, and HO is up 10 for the year, which means we essentially spent the past year going nowhere fast. Most notable however, is that WTI is down $10/barrel this year, proving that our products are increasingly driven by international markets.

The weekly DOE report will be out at 9:30. After several weeks of builds in crude stocks, it is largely expected that we will see a substantial draw this week as refiners begin to hold off imports to avoid year-end property taxes. With the light volume of trade taking place, the report could certainly cause a spike in volatility today, although for now it seems that energy prices will be dictated by the negotiations in DC.

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Energy Follows Equities’ Rally

On December 18, 2012 by TradingDesk
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Equities staged an impressive rally Monday, as progress was predicted in the budget talks in Washington. WTI joined in on the rally, aided by news that Enterprise would be increasing flows on the Seaway pipeline, which runs south from the Cushing OK NYMEX delivery hub, to Houston-area refineries. RBOB and HO ignored the rally however, choosing yet again to take the lead from European grades which fell fractionally on the day. Volume remains weak as the combination of year-end preparations and waiting to see what may or may not come out of Washington puts many traders on hold.

Cash markets continued their recent trend of weakness, despite the 2nd fire in a week at Motiva’s much maligned new CDU in Pt. Arthur. Although gasoline differentials rebounded from record lows, values remain depressed in every cash market outside of the New York harbor which is still struggling to get back to normal after Sandy. Charts remain neutral, so without a major headline to provide direction, expect the aimless trading to continue.

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