Energy Markets Open Slightly Weaker On Extremely Low Volume

On January 21, 2013 by TradingDesk
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Energy markets are beginning their abbreviated trading session on a weaker note, but volume is extremely low – as is expected during a US holiday – and the moves remain only fractional at the moment. WTI has yet to follow through on its break-out above $95 resistance, which will likely be the major story for energy prices this week as RBOB and HO prices continue to be stuck in the middle of their trading ranges.

US equities surged again Friday, on news that congress was working on another short-term extension of the debt ceiling, leaving the S&P 500 at its highest level since November of 2007. Meanwhile, Caterpillar was forced to write down the value of a Chinese subsidiary by $580 million due to accounting misconduct. While accounting fraud is not new on either side of the globe, this issue does raise concerns about the bullish data coming out of China in regards to economic growth and commodity consumption. With many forecasts for the year counting on Chinese strength to off-set weakness in Europe, particularly in energy consumption, markets could be in for a rude surprise is the basis for those arguments ends up being a scam.

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Energy May Get Boost From Equitites In An Otherwise Mixed Morning

On January 18, 2013 by TradingDesk
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It’s another mixed morning for energy markets, with WTI down a few cents – so far failing to follow through on its break of $95 resistance – while products are up modestly. The International Energy Agency (IEA) raised its forecast for global petroleum demand over the next year, as Chinese demand is predicted to offset a continued drop if Europe. China did its part in supporting the theory by reporting Q4 GDP that beat estimates, despite its oil demand growth rising by the lowest level in 4 years. With RBOB and HO both back in the middle of their trading ranges, the big question for now will be if WTI can sustain a technical breakout and spark the spring rally in products that many are expecting at some point. Equities are doing their part to support a rally, with the S&P 500 closing at its highest point in 5 years yesterday, which could end up tipping the scales in favor of higher prices.

With the headline markets remaining fairly quiet recently, suddenly the most interesting trading story of the week has come from the market for ethanol Renewable Identification Numbers (RINs) which have spiked from $.05 to $.1275 this week as US refiners suddenly are worrying that the “blend wall” – the point where US gasoline demand doesn’t support the required ethanol usage under the EPA’s Renewable Fuel Standard (RFS) at a 10% blend rate – may be hit this year. Expect this discussion to heat up as we approach the driving season, and parties obligated to demonstrate compliance with the RFS have to consider alternative measures such as E15 gasoline blends.

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OPEC Production Cut and Political Unrest Combine For A Bullish Mood for Energy Markets

On January 17, 2013 by TradingDesk
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Reports that OPEC has cut production to its lowest levels in more than a year have put a bid into the energy market this morning, aided by some weakness in the US Dollar index and another failure by refined products to sustain a break of technical support levels yesterday. The note from OPEC stating that they were forced to cut production to offset weak demand hasn’t seemed to make its way into the headlines. Yesterday’s DOE report confirmed that domestic product demand remains weak, while US refiners are still running plants at 2-3% higher levels than typical at this time of year, presumably to take advantage of the large margins available to anyone processing land-based crude.

While the attack on a natural gas field in Algeria has no direct impact on the crude or refined product markets, it has renewed concerns over the vulnerability of energy infrastructure around the globe, which just adds to the bullish mood on the day. The critical pivot point today appears to be $95 for WTI, which would represent a breakout from a bearish wedge pattern if the contract can settle above this mark. If the buying can’t sustain, the charts suggest we’ll go right back to our choppy but ultimately aimless trade.

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DOE Report January 16, 2013

On January 16, 2013 by TradingDesk
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DOE Weekly Report (CLICK HERE)

 

Today’s DOE Report May Determine Overall Trend in Energy Prices

On January 16, 2013 by TradingDesk
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The manic action in energy markets continued Tuesday, as HO prices ran into a wall at the 100 day moving average and quickly reversed course and wiping out most of Monday’s nickel gains, only to rally 2 cents overnight after the API report showed a surprise draw in distillate stocks. RBOB broke its support in the low $2.70s after the same report showed another large build in inventories, and there is little on the charts standing in the way of another sell off to the mid $2.50s.

Today’s DOE report may go a long way in determining which contract gains control over the overall trend, with WTI stuck in the middle. Estimates call for a build in inventories across the board, with refinery runs dipping another week as many plants enter their maintenance season. Although the correlations with energy futures have broken down over the past month, global equity markets are looking at a weak day after a new bout of disappointing economic data from China and Europe, which could still tip the scales as to whether refined products can sustain another winter sell-off, or if we’ll fast forward into the typical spring rally.

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Global Diesel Prices Strengthen Globally As Gasoline and Crude Contracts Look Susceptible To A Selloff

On January 15, 2013 by TradingDesk
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Diesel prices across the globe continue to strengthen as cold weather increases the perceived demand for heating fuel from Asia to the US East coast. HO rallied nearly 6 cents on the back of a 2% rally in Gasoil Monday, wiping out last week’s losses in a few hours. This morning the complex is trying to sell off after bearish economic data from Germany has brought out the sellers of the EUR/USD, but HO has so far been able to shrug off the move.

It’s a quiet week for economic headlines, which should make the DOE report more influential, and most analysts are predicting further product builds on weak demand. The question will be if HO is able to hold up the gasoline and crude contracts which are both looking susceptible to a sell-off on the charts. Key support remains at $2.70 for RBOB, $3.00 for HO and $92 for WTI.

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Long Term Bets On Record High Energy Prices Despite Growing Inventories

On January 14, 2013 by TradingDesk
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European gasoil and Brent crude are leading a modest rally in energy futures this morning, as speculators increased their long bets to near record levels, betting on further price increases despite a 16% rise in diesel stocks at the Amsterdam Rotterdam Antwerp (ARA) trading hub over the past month. HO is leading the rally in US grades, continuing its pattern of taking direction from across the pond and ignoring the action in US contracts.

Action in US Pipelines remains brisk, for both crude and products, with the new expansion of the reversed Seaway crude line – now bringing up to 400,000 b/d of crude from Cushing OK to Houston – and the partial reversal of Magellan’s south line – bringing refined products from Oklahoma to west Texas – grabbing headlines and taking the next in a series of steps to solve the country’s infrastructure shortfalls.

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Tight Supply Overnight Turns To Glut

On January 11, 2013 by TradingDesk
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Energy futures made a rapid about-face Thursday after news broke that Russian tankers carrying nearly 2.5 million barrels of diesel were on the way to delivery in the New York harbor, which appears to change a tight supply situation into a glut. With the failure to break technical resistance, the entire complex is selling off today, and HO prices are currently 9 cents below where they were this time yesterday.

The selloff comes in spite of the S&P 500 index hitting a 5 year high. Since the financial crisis in 2008, the correlation between HO and the S&P has frequently topped 90%. The past 4 weeks represent the first time in that period that correlations between the two have not topped 20%, which could represent a major shift in the overall balance of the market. If this trend continue through 2013, it could be extremely bearish for product prices as global supply & demand fundamentals simply don’t support the current lofty prices. Now that charts have flipped and favor near-term selling, target $2.70 in RBOB, $3.00 in HO and $92 in WTI as key support for the next week.

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All Signs Point To Higher Prices

On January 10, 2013 by TradingDesk
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An increase in Chinese exports, and a 5% decrease in Saudi oil production are lifting equities and energy prices respectively this morning. The Euro is also rallying, apparently on hopes that the European Central Bank (ECB) will hint at more monetary stimulus during the press conference currently underway. At this point, all signs point to higher prices, with many commodity and equity indices threatening multi-month highs.

The move by Saudi Arabia is reported to offset weak demand for its oil exports. Yesterday’s DOE report supported the theory, as demand for refined products hit a 5 year low, while domestic oil production hit a 20 year high. Fundamentally, in the US – and apparently across the globe – there is plenty of oil and refined fuel to meet consumer demand, the question remains can it get from where it is, to where it needs to be. Charts are turning bullish, and if WTI can break above $95, and HO $3.10, a case will be made for the start of our spring rally, despite the weak fundamentals.

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A Mixed Morning for Energy Markets

On January 9, 2013 by TradingDesk
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It’s a mixed start for energy markets this morning, WTI and RBOB are sliding after large inventory builds were shown in last night’s API report. HO meanwhile continues to follow the lead of European gasoil, which is benefitting from record cold temperatures in some Asian countries which has spurred the export market for distillates. The major story for US markets continues to be the dislocation in crude prices: Western Canadian Select (WCS) is currently trading for $57/barrel, whereas Louisiana Light (LLS) is nearly twice as expensive, selling for $111/barrel today. Refiners, primarily within Padds 2 & 4, with access to the cheaper grades of crude are starting with more than a $1/gallon advantage over those tied to waterborne crude, and thus continue to run near max capacity, causing a glut of gasoline in the midcontinent. Group 3 barrels are now trading 32 cents below the gulf coast, and 47 cents below the New York Harbor. There are dozens of factors that will determine how long these spreads last, but at the moment it appears that this situation will persist through the next few months.

Futures remain stuck in neutral technically, and without a major move from global equity markets, expect the real action to remain in the pipelines for some time.

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CLICK HERE for a PDF of this week’s DOE Report

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