A Week of Volatility

On May 31, 2013 by TradingDesk
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The DOE report released Thursday showed builds in crude and ULSD stocks, but a pre-Memorial-Day boost in gasoline demand drew those inventories lower. The report appeared to catch the market off-guard as a 4 cent loss in RBOB was quickly reversed and the contract finished in the green. ULSD futures attempted to rally in sympathy, but the buying stalled out early afternoon and diesel values slipped lower yet again, completely wiping out Tuesday’s large gains. Despite the volatility, both contracts remain firmly range-bound with technical studies giving slight favor to lower prices as we enter June.

The bright spot of the DOE report was that US production of crude oil continued to increase, and now stands at its highest level in more than 20 years. Unfortunately for consumers, as is shown in the chart below, that increased production has had little impact on prices so far. Meanwhile, US refiners are now importing nearly 1 million barrels per day less oil than they were just a year ago, and OPEC has announced that it is maintaining its production quota, so crude fundamentals appear to favor lower prices going forward as well.

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DOE Report for May 30, 2013

On May 30, 2013 by TradingDesk
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DOE Weekly Report

On May 30, 2013 by TradingDesk
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Energy Prices Falling Again

On May 30, 2013 by TradingDesk
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Energy prices are falling again this morning, following across-the-board builds in last night’s API inventory report, and following a report from the IMF that suggested Chinese economic growth would be less than forecast. Despite the past two days of selling, both RBOB and ULSD futures remain in their May trading ranges, with a break of support in the low $2.70s needed to see further downside. The DOE report will be released at 10am central, and is expected to show continued gains in domestic stocks as domestic demand remains weak, which may finally be enough to break the complex out of its go-nowhere pattern.

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Continued Search for Direction

On May 29, 2013 by TradingDesk
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Due to our continued search for direction, our energy complex rallied in sympathy with equities yesterday as it saw favorable housing data and a spiking consumer confidence. However today we are seeing RBOB and HO pulling back modestly which would continue the range-bound trading we have seen for the last 3 weeks. A break to either below the mid 2.70s or above the high 2.80s could turn resistance into support, or vice versa, and give RBOB some direction. Same goes for HO at above 2.95 and below 2.80.

Basis markets seemed unimpressed when a CSX locomotive was derailed in Maryland when it smashed into a truck that had stopped on the tracks. The explosion from the chemicals onboard rocked some nearby storage facilities. Luckily no one was hurt and refined-products-by-rail hasn’t been implicated as the sole culprit.

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Morning Charts for May 28, 2013

On May 28, 2013 by TradingDesk
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Energy Prices Stuck in Neutral

On May 24, 2013 by TradingDesk
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Energy futures continued their “Bend-don’t-Break” trading pattern yesterday, as WTI bounced sharply off of its 200 day Moving Average – the purple line below represents the average, which is what many consider to be the Hedge Funds indicator of choice – and refined products wiped out heavy early morning losses. There was not a headline to point to for the bounce, and in terms of timing it appears that for at least one day, energy values decided to take the lead from US stock indices, which also staged a comeback after an early sell-off.

Unfortunately, global markets aren’t faring as well, headlined by extreme volatility in the Japanese Nikkei, which dropped by more than 7% yesterday, then had a wild 1000 point swing today as investors struggle to sort out the central bank’s aggressive policies to break out of a 15-year period of deflation. What is interesting is that a strong durable goods order report in the US (+3.3% for April) has brought on a negative response to futures prices, with several writers already suggesting that any good news is bad for risk assets as it means a faster end to central bank intervention.

For now, energy prices remain stuck in neutral, with a slight bias to the downside on the charts. With volumes light as traders prepare for a long weekend, don’t expect any major moves today unless some event shocks the market back into a trend.

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Markets Selling Off Sharply

On May 23, 2013 by TradingDesk
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Global stock and commodity markets are selling off sharply this morning, led by a 7% drop in the Japanese Nikkei index and a 2% decrease in several European indices, after the FED minutes and Ben Bernanke’s testimony before congress yesterday left many confused about the future course of quantitative easing. China’s PMI reading for may also surprised to the downside, which has added to the negative sentiment. With most of the world’s developed stock markets sitting at 5-year highs, a correction in the 5-10% range is certainly possible, especially if fears of the free-money punchbowl being taken away materialize.

RBOB and ULSD futures are now both trading a dime lower for the week, with a major test of technical support coming up. Both contracts are currently trading below the trend lines that have supported their recovery in May, setting up a potential test of the year’s lows around $2.70 for each. It would be unusual to see a major sell-off ahead of a long weekend, especially Memorial Day which unofficially marks the beginning of driving season, but with investment flows driving prices more than actual driving, it would not be impossible. In fact, yesterday’s DOE report showed a counter-seasonal build in gasoline supplies, leaving stock piles near their highest level for this time of year in nearly 5 years.

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DOE Weekly Report

On May 22, 2013 by TradingDesk
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Momentum Appears to Favor the Bears

On May 22, 2013 by TradingDesk
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RBOB gasoline prices dropped by 6 cents Tuesday, after the contract failed to hold support at the 200 and 14 day MA support levels, and have continued to sell-off overnight, dropping by another 4.5 cents in the early morning hours. The contract has found support at a short term trend line which began on the first trading session of May when prices rebounded from $2.70. With time & crack spreads also breaking down technically – and Midwest cash markets rapidly coming back to earth after setting record highs last week – the momentum at the moment appears to favor the bears. With that said, each week in May so far has witnessed gas prices bottom on Wednesdays and rally in the back half of the week, so unless RBOB can break its trend at $2.81, expect the neutral trade to hold for now, and don’t be surprised if prices drift higher ahead of Memorial day.

Similarly, ULSD futures are down nearly a nickel from Friday’s close, but remain in the middle of a wide, aimless trading range. The contract did stall out exactly at a 61.8% resistance level that would suggest the rally from April’s lows in the $2.70s is just a corrective action in a larger bear market, but values must now drop another dime to confirm this point. This morning’s DOE report is expected to show stock gains across the board as demand remains weak across the country. The real market mover today may not come until this afternoon however, when the FED releases their minutes and the free money debate begins anew.

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