Energy Futures Slipping This Morning

On May 21, 2013 by TradingDesk
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Energy futures are slipping modestly lower this morning, as the USD strengthens on incessant debate over what the FED – and other central banks – may due to stimulate stagnate economic activity around the globe.  In what is expected to be a slow news week, the FED’s minutes from its May meeting will be closely scrutinized to try and find a bias going forward.  RBOB and ULSD futures remain stuck in a wide trading range, with little indication of trend going forward, although the HO contract is showing some signs of wanting to test its upper boundary at $3, especially if the record net-short position held by non-commercial traders continues to be liquidated this week.  Absent a major flow of funds however, it appears that sideways trade will continue.

Red Hot gasoline prices across the Midwest have cooled somewhat over the past two trading sessions, although values remain nearly $.50 over the Gulf Coast, and several states in the Midwest are facing record high retail prices ahead of Memorial day.  According to Bloomberg, Oklahoma Gas & Electric is not aware of any refinery or terminal outages due to yesterday’s storms, so it may turn out to be more of a demand disruption than one to supply as it may take weeks to return to normal activity in several areas.

The chart below shows the spread in price between spot conventional gasoline grades in the Group and the USGC, and now that restarts of disrupted units at Holly’s refinery in El Dorado KS, and Flint Hills’ refinery in Pine Bend MN have been detected, it’s likely that this spread will shrink rapidly over the next week.

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Physical Market Volatility to Continue

On May 20, 2013 by TradingDesk
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Energy futures are slipping fractionally lower this morning, as the complex continues its multi-week search for direction. Currency markets have taken most of the headlines overnight, as central bankers across the globe continue to come up with more creative ways to devalue their currency support their economies, which has helped push a global stock index to a fresh 5-year high. Commodities meanwhile continue to detach themselves from stocks, after nearly 4 years of strong correlations between the asset classes, with energy markets stuck in neutral, and metals plunging again.

Even within the energy arena, it seems that money managers can’t quite make up their minds, as last week’s Commitment of Traders report showed an increased net short bet on ULSD (HO) Futures, while RBOB, WTI and Brent all saw more money flow in on the long side. One note of caution for ULSD traders, is that this report is compiled based on last Tuesday’s positions, and the double digit bounce witnessed Wed-Friday suggests that some of these shorts may have been forced to cover in the back half of the week.

While futures trading has been lackluster, the physical markets have remained extremely volatile. Group 3 Conventional Unleaded prices dropped by 15 cents Friday, but remain nearly 70 cents over gulf coast CBOB. Chicago ULSD also spiked, sending it some 30+ cents over the gulf coast as area refiners continue to struggle with planned and unplanned maintenance. With Memorial Day marking the start of driving season, expect the physical market volatility to continue this week.

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Hurricane N Grade

On May 17, 2013 by TradingDesk
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Refined product futures are trading 1% higher this morning, having increased 13-15 cents from Wednesday morning’s DOE-induced sell-off. Some are attempting to pin blame on surging Midwestern (PADD 2) cash prices, although fundamentally there is no impact on the New York harbor. The charts below show the gasoline stocks for Padd 2, which are following their seasonal pattern, and the refinery throughput in the region, which is extremely low due to continued outages at 3 major refineries in the region. The last chart shows the differential of prompt Magellan gasoline (N Grade, the benchmark of Group 3 prices) to RBOB futures. With premiums now surpassing even those of the chaotic, storm influenced 2005 and 2008 trading years, the current situation may best be described as “Hurricane N Grade”.

Although there does not appear to be a fundamental reason for the rise in futures over the past 2 days, there is no mistaking that the first layer of technical resistance has been broken through this morning, and a test of $3 in both RBOB and ULSD futures may be in the cards. With chaotic cash markets, Colonial pipeline having some minor (for now) issues with its main gasoline line and Memorial Day weekend approaching, there appears to be a good chance of a price spike over the next week.

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Midwest Gasoline Drama Continued Wednesday

On May 16, 2013 by TradingDesk
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Energy futures sold off by more than 2% Wednesday following another bearish DOE report that showed US stockpiles continuing to grow in the face of weak domestic fuel demand. Then, without warning, the entire complex made an about-face and ended the day in the green. Traders and analysts are still asking why, with no clear answer emerging just yet. What is clear is that the 10 cent intra-day reversal – ULSD futures bounced 7 cents – sets up another layer of technical support that will need to be broken if prices are going to break out of the May range.

Negative economic headlines have also been plaguing the market this week as growth cools across the globe, but while that has been bearish for commodities, it has had the opposite effect on stock markets, which continue to break record highs daily, largely due to weak data raising hopes for more money printing central bank stimulus.

The Midwest gasoline drama continued on Wednesday, with Group 3 basis values reaching 60 cents a gallon over futures for prompt barrels, making a pipeline gallon of 87 conventional in Tulsa worth roughly 75 cents more than the same gallon in Houston. If you happen to live in the area and notice a spike in tanker-truck traffic, that would explain why. Prices should collapse as soon as the handful of refineries in the region return from maintenance, but at this point, no one is exactly sure when that might be, and it appears likely that a wide spread (although maybe not so extreme as it is today) may continue through Memorial day, which marks the unofficial start of driving season.

US demand for gasoline is at the lowest level for this time of year in more than 5 years.

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DOE Weekly Report

On May 15, 2013 by TradingDesk
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CLICK HERE for a PDF of this week’s DOE Report

WTI Crude Sell Off Continues for 5th Straight Day

On May 15, 2013 by TradingDesk
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WTI crude is selling off for the fifth straight day, after last night’s API report showed another build in US stockpiles, and as Euro-zone GDP slipped deeper into recession territory. ULSD futures are also slipping lower, setting up another potential test of the April/May lows in the mid $2.70s range. RBOB is managing to hold flat for the moment, as gasoline stocks are tightening as refiners struggle to keep up with lower RVP requirements. While technical studies are still not indicating any sort of trend for energy contracts, they are beginning to move into more bearish territory, which may be signaling an end to a two-week long period of stagnation.

The action this week has come in the gasoline cash markets, which saw Group 3 conventional unleaded and Chicago RBOB each trade at 50 cents over the Nymex as physical supplies dwindle during refinery maintenance and rvp transitions. Chicago prices are already dropping by more than 13 cents today as the 3rd cycle of May becomes prompt, and prices slide down a steeply backwardated curve. The cheaper forward prices suggest this spike is not expected to last.

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Going Sideways Fast

On May 14, 2013 by TradingDesk
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Energy prices are falling, albeit modestly, for the 3rd straight day, following a semi-annual report from the International Energy Agency (IEA) that soft global demand and rising US oil production would keep markets well-supplied for the near future.  Refined products remain stuck in their trading range, with the most recent bout of selling having a bend/don’t break feel.  Technical indicators remain stuck in neutral for futures, and currency and equity markets remain conflicted, which makes it seem as though we’ll need some sort of event to break out of the May pattern of sideways trade.  If prices don’t break below support in the next week, it looks extremely unlikely that we will see the 30-50 cent sell-off that we’ve had each of the past 3 years.

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Friday’s Energy Bounce Establishes Short Term Technical Floor

On May 13, 2013 by TradingDesk
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Energy futures are starting the week with modest selling, after a report showed that Chinese oil demand hit its lowest level in 8 months last week, and after a WSJ article suggested that the FED is formulating a plan to end its 4-year run of quantitative easing. Despite the drop this morning, all contracts are still above their lows from Friday, when a late-day bounce put in a solid short term technical floor, and salvaged modest gains for the week. Range-bound trade is expected at the moment with indicators remaining mixed.

Friday’s Commitment of Trader’s report showed that money flowed back in to both Brent and WTI crude contracts, while refined product positions stayed flat. With speculative positions at their lowest net long in over 5 years for RBOB gasoline, and net short for the 5th straight week in HO, the question becomes is this flight of money out of commodities the beginning of a bear market, or a reason to rally once the hot money comes back in.

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Surging Dollar Pushing Energy Contracts Down This Morning

On May 10, 2013 by TradingDesk
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A surging US Dollar is causing heavy selling across the commodity spectrum this morning, with several energy and metal contracts trading down by 2% or more.

The chart above shows the relationship to the USD (gold line) to ULSD futures (white line) during the overnight session.

The action this morning is similar to what we saw during the first two weeks of April as investors pulled record amounts of money out of commodity funds, although it’s too early to call the end to the May bounce. The move does prove yet again that over the past 5+ years, it is financial demand for commodities as an investment vehicle that drives the price action more than the physical demand by consumers.

Yesterday energy markets rallied sharply on headlines that a large black smoke cloud was reported over the PBF refinery in Paulsboro, a critical refinery in the current thin East Coast market. Early losses were quickly erased in refined products, and strength remained for several hours until it was discovered that a local resident had been concerned about a steam cloud, quite normal in the operation of a refinery, and had called in a fire report to local authorities. Thankfully the report wasn’t made on Twitter, or the reaction could have been much more severe.

RBOB did stall out at the 200 day MA resistance point during the rally, setting up a strong price ceiling in the short term, while $2.70 still remains the key floor. Similarly, HO failed to gain any traction above $2.90 and will now need to break below $2.80 to end the sideways pattern of the past 2 weeks. Without a good way to track funds in real time, we’ll simply have to sit back and watch where the hot money flows into, or out of, today.

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Despite Weak Domestic Demand, RBOB Futures Manage To Gain

On May 9, 2013 by TradingDesk
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Yesterday’s DOE report showed that domestic demand for gasoline and diesel remains weak, while crude production in the US continues to grow rapidly and US stockpiles of crude are at their highest levels ever recorded in the 30+ years of reporting.  Despite the weak data, RBOB gasoline futures managed to gain, as traders suspect the low RVP requirements across the country will tighten up the supply situation in the near future.  Also, contrary to what the report might suggest, WTI reduced its discount to Brent crude to the lowest in more than 2 years, now trading below $8/barrel, after hitting a record of $27/barrel just 6 months ago.  Many are pointing to the surprising ability of rail traffic to alleviate the glut of crude in Cushing as the catalyst for the move, while the Commitment of Traders reports shows that speculative money fleeing the Brent contract may be to blame.

Meanwhile, despite some modest selling this morning, both RBOB and ULSD futures remain stuck in a neutral trading range.  Stocks continue to steadily move higher, and middle-east tensions are simmering which favors the bulls, while weak demand and a flight out investments funds away from commodities favors the bears.

CLICK HERE for a PDF of this morning’s charts

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