Speculative Money Will Dictate Much Of The Spring Rally In Energy Prices

On February 18, 2013 by TradingDesk
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It’s a quiet morning in energy markets as most traders in the US have taken the day off, and global stock markets are moving only fractionally. Gasoline prices grabbed the headlines last week, with RBOB futures up a dime, and gulf coast pipeline values rising 20-30 cents on strong export bids from international trading houses and US Banks. WTI continues to lag behind the products rally, and was hit again on Friday after the Seaway pipeline owners said the takeaway issues that have forced a reduction in rates may not be solved until the end of the year, implying the glut of crude oil at the Nymex hub in Cushing OK will remain for now.

RBOB charts continue to favor higher prices, but WTI, Brent and HO are all showing signs that the rally has topped out. Speculative money continues to flow into all of the energy contracts, as managed net long positions hit their highest level for this time of year. Expect those flows to dictate much of the action as we enter the heart of what is typically our spring rally.

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Energy Prices and Inventories Rise

On February 15, 2013 by TradingDesk
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Exactly one month ago today, RBOB futures settled at $2.70/gallon. This morning, the high rvp March contract is trading for $3.16 and the low rvp April contract for $3.34. Padd 1 gasoline stocks have risen rapidly during the same time, and now stand higher than they were this time last year. With US Retail prices hitting a record high for this time of year, expect many questions about why prices continue to go higher. Perhaps the CME Group’s press release this morning touting the records set this week for open interest in its energy futures contracts inadvertently sums it up best. The most recent CFTC commitment of traders reports that speculative long positions are also at record highs for this time of the year. With more money than ever betting that prices go higher, the market has become something of a self-fulfilling prophecy this week.

The only good news for consumers at this point is that during the past 3 years when we saw similar rallies, the sell-off once this speculative money left the market, was just as severe as the preceding run up in prices. In 2010, the market dropped 70 cents in 2 months. In 2011 it was a dollar drop in 3 months, and last year RBOB values fell 90 cents from March to June.

While RBOB is fulfilling its breakout from the bullish flag pattern formed over the past month, HO, WTI and Brent are all struggling to stay in the green, and signs of topping out are beginning to appear. If Brent fails to get back above $118 and WTI fails to challenge $100 over the next week, we may finally see some relief from the relentless rise in gasoline prices.

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Charts Favor Higher Energy Prices In The Near Term, But…

On February 14, 2013 by TradingDesk
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Most energy contracts are moving slightly higher this morning, but March RBOB is up more than 2 cents, as the March/April spread recovers from a record low yesterday of nearly -24 cents. RBOB’s bid to break out of its 2-week old trading range yesterday failed following the DOE report which showed that gas stocks dropped by less than 1 million barrels on the week, despite heavy refinery turnarounds. Charts continue to favor higher prices in the near term, but products will have to overcome a slumping Brent crude contract which dropped after the Euro zone reported that its Q4 GDP slipped deeper into recession territory than was expected. US Stocks are set to open lower on the news as well, and the EUR/USD is down more than a penny. With the energy rally already stalled this week, the reaction to this negative news should give us good insight into the future trend. If prices can hold up, expect a return to the rally in the near future.

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DOE Report Feb 13, 2013

On February 13, 2013 by TradingDesk
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DOE Weekly Report

Everything On The Charts Continue To Favor Higher Energy Prices

On February 13, 2013 by TradingDesk
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RBOB futures are leading energy commodities into the green this morning, shrugging off reports that the Come By Chance refinery in Newfoundland would return to full rates this week (a major source of East Coast gasoline imports) and a cut the in the IEA’s forecast for global petroleum demand. The move appears to be purely driven by technical, as the contract has broken out of its two-week old consolidation between $3 and $3.06. If the gains hold, the chart pattern suggests another 30 cents of upside for RBOB. While that may seem extreme, prices will already be 20 cents higher as soon as we roll to the April low rvp contract. With Brent crude also holding above $118, everything on the charts continues to favor higher prices.

Meanwhile, US equities remain only 1 strong day away from record highs, which should help energy prices remain strong. In several ways, the moves in energy and equity prices are similar to what we saw a year ago. The silver lining for consumers is that once the rally did finally end last spring, prices dropped 25% over the next two months.

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Energy markets are moving quietly higher this morning after failing another test of support Monday.

On February 12, 2013 by TradingDesk
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Energy markets are moving quietly higher this morning after failing another test of support Monday. WTI bounced $2.5/barrel after briefly trading below $95 yesterday morning, and RBOB is up nearly 4 cents since its attempt to break $3.00. The discussion of a change in the delivery requirements for Brent crude has caused a minor correction in the Brent/WTI spread, currently at $21, and pulled RBOB cracks vs. WTI back from record highs. Goldman Sachs released a target of $7 for that spread this year, suggesting that the infrastructure race to relieve the glut of crude from the middle of the US would finally see the finish line after 2 years. Meanwhile the meanwhile the merger between Canadian oil producer Nexen and the Chinese National Offshore Oil Corporation (CNOOC) was approved by US regulators, which should eventually provide alternative outlets for the Canadian crude grades – some of which are trading in the $60 range due to lack of transportation infrastructure.

Meanwhile, equity markets are quiet with many Asian markets taking the day off to celebrate the new year. Charts continue to point to higher prices, although a trading range has developed that may require a catalyst to break out of.

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Energy Is Selling Off Today After Finding Nemo Did Little to Disrupt Supply

On February 11, 2013 by TradingDesk
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Energy prices stormed higher Friday, buoyed by a breakout in Brent crude, and by concerns that Nemo would disrupt supply in the Northeast. The storm did little, if any, damage to energy infrastructure and so we’re selling off today. In addition, Shell unilaterally changed the rules of BFOE (the delivery grades of Brent) crude cargo deliveries, in an attempt to add liquidity to a market that often faces logistical bottlenecks. Some believe the move could put a lid on Brent prices when it takes effect this summer.

RBOB is leading the complex lower this morning after the Trainer PA refinery announced that it had restarted an FCC unit that had been down for weeks. The contract has tested support at $3, and held yet again. The contract is in a flag pattern and needs to break below $3 or above $3.07 to find any direction. HO meanwhile continues to target its fall highs in the $3.26 range, with little on the charts to slow it down.

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The March Higher Continues

On February 8, 2013 by TradingDesk
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The march higher continues this morning, after Chinese trade data surged in January, with both exports and imports increasing by more than 25% from a year ago. What’s conveniently ignored in the data is that due to the timing of the Lunar New Year, there were 5 more working days in January 2013 than in 2012, which accounts for almost all of the move. We are clearly in a bull market in equity and energy prices, and this type of positive reaction should be expected. We’ll know the rally may be ending when “good news” is suddenly not enough to push us higher.

HO has broken through to fresh highs for the year, following Brent crude which stands at 9 month highs. The diesel contract now stands less than a dime from its highest levels since 2008 when it peaked at $4.15. The pivotal resistance level over the next few weeks will be the range between $3.30-$3.33. Meanwhile, only WTI’s inability to break $100 (so far) may hold the complex back from continuing its spring rally. There is much discussion over how the major storm bearing down on the East coast may impact prices. At this point, it does not appear strong enough to impact energy infrastructure and likely poses more of a threat to demand than supply.

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Refined Product Futures Push To New Highs For 2013

On February 7, 2013 by TradingDesk
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Refined product futures pushed to new highs for 2013 overnight, after another attempted selloff failed during yesterday’s session. Both contracts have pulled back in the past hour after the European Central Bank (ECB) left its interest rates and policy unchanged, which caused the EUR/USD to wipe out its overnight gains. With WTI bouncing off of support at $95 again, most of the pieces appear to be in place for another sustained rally in energy prices. Brent crude is just a few pennies away from breaking to a fresh 6-month high, which could prove the catalyst for another rally, while a failure may signal another period of consolidation.

In contrast to the bullish technical picture, yesterday’s DOE report showed that demand continues to be stagnant in the US, with more than 1 million barrels per day of refined product exports needed to continue to balance the supply equation. With a major winter storm bearing down on the east coast, expect demand figures in the next few weeks to remain lackluster.

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DOE Report for February 6, 2013

On February 6, 2013 by TradingDesk
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CLICK HERE for this week’s DOE report

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