Refined Product Prices Dealt A Major Blow While RBOB and HO Stage An Impressive Rebound

On February 28, 2013 by TradingDesk
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Refined product prices were dealt a major blow by Wednesday’s DOE report, which showed that US Refiners are coming out of a heavy maintenance period at a much faster pace than forecast, calming concerns of product shortages due to low production.

RBOB gasoline futures are poised for their worst week since the US Debt Downgrade in August 2011 fueled a wide-spread selling spree across commodity and stock markets. While it may seem a foregone conclusion that the 30 cent drop from Monday morning spells the end of the 2013 pre-spring rally, the chart below suggests that prices have just now reconnected with their bullish trend line for the low RVP April contract. In order for an argument to be made that the rally is over, the April contract should open as the prompt contract tomorrow trading below $3.08, and HO must break decisively below its 200 day Moving Average (long believed to be the hedge fund indicator of choice) at $2.9869.

The notable difference this week from the last time we saw this type of selling in energy futures is that RBOB and HO are moving independently of US stock indices, which have staged an impressive rebound after Monday’s panic, and are now poised once again to test their all-time highs.

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DOE Weekly Report

On February 27, 2013 by TradingDesk
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Too Early to Call for an End to the Spring Rally in Prices

On February 27, 2013 by TradingDesk
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Refined product futures sold off heavily Tuesday, ignoring a bounce in US equities, in what appeared to be technical follow through on Monday’s big “outside down” reversal pattern. Prices did attempt to stage a rally when Ben Bernanke testified before congress, suggesting to some that the FED was not yet ready to end its 4-year long run of stimulus, but the selling picked up again in the afternoon, leaving RBOB, HO along with WTI and Brent at their lowest levels in a month. We won’t know until the CFTC reports on positions Friday afternoon, but given the heavy volumes involved in the past two days of selling, it does appear that some of the record-high length among “Non-Commercial” traders (hedge funds and other money managers) may be pulling out of the energy market for now. Rumors were swirling that an energy-focused hedge fund was going out of business, but those same rumors were present during last week’s selloff and nothing yet has materialized.

It is still too early to call for an end to the spring rally in prices, for gasoline in particular which will be 20 cents higher once we roll to the low RVP April contract on Friday, but the 20 cent drop in cash prices this past week should finally provide a brief respite to consumers.

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Hints Of An Ending Bull Market

On February 26, 2013 by TradingDesk
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Monday’s trading session posted big reversals in several major stock and commodity markets, after an overnight head fake in Italian election sent risk assets surging. Early morning gains (higher than prior days’ high prices) were wiped out and values from RBOB & HO to the S&P 500 and DJIA settled lower than previous day’s lows. The outside down pattern formed on charts by this price action suggests the end of a bull market, although it will take more than a single day to prove the move. That said, energy markets haven’t wasted any time following through on the selling, with high RVP March RBOB off nearly 9 cents, and the low RVP contracts off 7, with HO down nearly a nickel.

It’s notable that US Equity markets and both WTI and Brent crude grades are not selling off nearly as much as refined products, which suggests that perhaps some of the speculative length that has flooded into RBOB and HO over the past few weeks may be heading for the exits. RBOB must hold below $3, and HO below $3.08 today for any chance at a new bear market, rather than just a correction of a 3 month bull run, is to take hold.

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Energy Prices Heading Different Directions

On February 25, 2013 by TradingDesk
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A week ago, RBOB futures were above $3.16, and appeared set to continue the 2013 rally for some time. Three sessions later, last Thursday morning, the same contract was trading at $2.97, and appeared to be on the cusp of a major breakdown. This morning, the contract is back up to $3.13 and all several signals – a rallying EUR/USD, global equities in the green and Brent once again outpacing WTI – support even higher prices.

Diesel prices meanwhile appear to be putting in a temporary floor, but HO needs to break back above $3.15 in the next day or two to move beyond the downward sloping trend line that has contained its rally attempts over the past two weeks. Likewise, WTI must get back above $95 to put an end to its 2 week slide.

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Energy Prices Heading Back Higher

On February 22, 2013 by TradingDesk
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Energy prices are heading back higher this morning, led once again by Brent crude prices, up nearly $1 after a positive read on the German business climate allayed some fears of further financial crisis for the moment. RBOB prices now stand 10 cents higher than they were at this time yesterday, with an 11% drop in Padd 1 refining throughput in yesterday’s DOE report taking much of the blame. With both RBOB and HO prices holding support at $3, and $3.10 respectively, it remains too soon to say that this week’s drop marks the end of the 2013 price rally. Meanwhile, Brent crude is sitting on a trend line that has supported a $25 rally since last June. With US products still tending to follow the European grade, Brent’s reaction to hitting that support level may determine our price direction over the next several weeks.

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DOE Weekly Recap 2/21/13

On February 21, 2013 by TradingDesk
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FED Open Market Committee Meeting Triggers Corrections

On February 21, 2013 by TradingDesk
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A major correction is underway in energy and equity markets after the minutes of the Federal Reserve’s latest Open Market Committee meeting were released yesterday, and members discussed pulling back on the liquidity infusions that the market has become quite accustomed to over the past 4 years. With record amounts of speculative money in energy futures as of  last week’s report, the sell-off has been swift, with RBOB now trading 17 cents below its Monday highs, and HO off a dime. WTI has broken through support at $95 and RBOB has fallen below $3, which sets up further downside potential on the charts.

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REFINED PRODUCT PRICES ARE SLIPPING THIS MORNING

On February 20, 2013 by TradingDesk
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Refined product prices are slipping lower this morning, following Brent crude into the red after Saudi Arabia announced plans to ramp up oil production in Q2 after slowing rates through a winter season of weak demand. WTI is holding flat, benefitting from headlines of the oil market’s new obsession – the Seaway pipeline – will ramp up to 295mb/day in the near future. Full capacity of 400mb/day will not be reached until offloading facilities are upgraded to maintain pace with the pipe’s flow rate.

Heating Oil futures are down less than a penny, but the contract shows the most bearish technical outlook after the 14 day Moving average was breached yesterday, and an attempted rally stalled at that same point. With former support now turning into resistance, peg $3.15 the next support level, with a failure there setting up a 10 cent drop in prices. RBOB has set up a mini double-top at $3.16, and shows signs of returning to its early February trading range from $3-$3.05, before we roll to the low RVP April contract which is trading 19 cents higher. Unfortunately, unless both contracts fall back below the $3 mark, the larger trend remains up and the spring rally is intact.

Meanwhile, physical product markets remain quite confused, as the Gulf Coast gasoline prices are holding above the New York harbor, as aggressive export bidding has driven a 20 cent rally in basis values, on top of the gains in the RBOB futures contract. In normal circumstances it is rare for Gulf coast values to exceed New York – since much of the east coast supply comes from the gulf – and in the months since Hurricane Sandy, the premium for east coast barrels regularly topped 20 cents/gallon.

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Aimless Direction For Energy Trading

On February 19, 2013 by TradingDesk
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We have another mixed bag of energy prices this morning, mirroring the conflicting action in global stock markets. RBOB is currently clinging to ½ cent gains, its lowest trading point of the holiday-extended session, while WTI is hitting its highs of the day, but just barely in the green. HO is down a little over a penny, testing support at its 14 day moving average. Volume has been extremely light, and perhaps the best way to describe the overall trade is “aimless”.

Likewise, global equities are conflicting. European shares are heading higher as German Investor confidence rose to the highest level in 2 years. Meanwhile, Chinese stocks had their biggest sell-off in 2 months after the government began its first liquidity draining operation (the opposite of the US FED’s QE programs) to cool inflationary pressures.

While it’s too early to call the end of the 2013 energy and equity rally, signs are showing that prices may be forming a top, and a 10-20% correction may be coming.

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