Technical Studies Remain Mixed

On June 18, 2013 by TradingDesk
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Energy futures took a break from their two-week rally Monday, slipping back below technical resistance levels in the $2.87 range for RBOB and the $2.96 range for ULSD. There were no headline drivers of the action, although the debate over the Syrian conflict raged on at the G8 summit, so it seems that the move was simply a bit of profit-taking/position squaring ahead of this weeks FED meeting. Crude and products are moving fractionally higher this morning, with thin trading volume as it appears many will simply wait on the sidelines until tomorrow’s announcement. The critical piece of language the market is looking for is how the FED plans to exit its QE programs, which have fueled equity and commodity markets since 2009. If no mention of “tapering” is made, expect a price surge as participants cheer the continuation of free money. At this point, it seems like most analysts are expecting some form of exit plan to be included in the announcement, the speed of which that exit takes place will likely determine our market’s direction for some time.

Fundamentally, energy markets in the US remain weak as refineries emerge from what was an extremely busy spring maintenance season, and cash markets across the country are beginning to crumble under a glut of product. While ULSD remains propped up by export bids, gasoline prices are slipping in all markets outside of California as domestic demand slumps. Technical studies remain mixed, with slight favor given to higher prices for energy futures in the near term.

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Market Update

Energy Futures End the Week on a Strong Note

On June 17, 2013 by TradingDesk
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Middle-East tensions helped energy futures end the week on a strong note, pushing RBOB and ULSD futures through near term technical resistance, and WTI is now trading at its highest level since September. While rising tensions in Syria and Turkey grabbed most of the headlines, a surprising victory for a moderate candidate in Iran’s presidential election may neutralize some fears of further violent escalations in the region. The FOMC meeting this week is already grabbing much of the attention – even though the policy announcement won’t be released until Wednesday – as traders try and anticipate the FED’s next move. During the past 4 years of extremely loose monetary policy, the market has tended to trade higher ahead of these announcements, which seems to be helping equity futures today.

Despite a 17 cent surge in ULSD prices over the past 2 weeks, speculators maintained a large net-short bias in the contract, while they continued to add length in both Brent and WTI crude. With ULSD now breaking through near term resistance, and setting up a test of $3, these positions should be watched closely to see if it sparks a short-covering rally. WTI also faces a major test at the $100 mark this week, while RBOB continues to lag the complex. If either of those resistance levels is broken, it may signal the end to our 2013 sell-off, with a test of our recent highs in the $3.20 range coming.

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Market Update

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Energy Prices Pushing Through Technical Resistance

On June 14, 2013 by TradingDesk
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Recovering stock markets and new tensions in the Middle East are helping push energy prices through technical resistance this week, with RBOB and ULSD futures now just a nickel away from finally breaking out of their 2-month old sideways trading range. President Obama has authorized the first shipments of weapons to arm Syrian rebels, and Libyan citizens have disrupted operations at several oil ports, pushing Brent crude above $105 for the first time since early April.

If this rally holds today, $3.00 will be the next critical pivot point on the charts. With record short interest in ULSD futures, this week’s break of technical resistance could trigger a round of short covering that sends prices sharply higher. ULSD values have bottomed out sometime between late June and August each of the past 3 years, and the past two weeks of gains may just be signaling that we will see a similar pattern this year.

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Market Update

Energy Futures Stuck in No-Man’s Land

On June 13, 2013 by TradingDesk
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US Stock markets dropped for the 3rd straight trading session Wednesday, the longest losing streak of 2013. Overnight, the world bank cut its forecast for global economic growth and the selling continued in Asia – most notably Japan’s Nikkei index was down more than 6% – and Europe, while S&P 500 futures are pointing to a 4th day of selling. Energy prices are holding up well despite the worries gripping equity markets, despite yesterday’s DOE report showing ample supplies, particularly of Crude and Gasoline (detailed in the chart below) and sluggish demand. ULSD prices are outperforming as the export market has managed to balance the domestic supply/demand equation.

While energy futures remain stuck in no-man’s land, the action has continued to be wild in cash markets, with Chicago gasoline prices plummeting 60 cents/gallon this week as Exxon Joliet finally began full operations after a 6 week turnaround and rumors swirled that BP would begin running its revamped units in the next 7-10 days. But just as it seemed that Midwestern gasoline prices would finally come back to reality, Citgo’s refinery in Lemont IL was struck by lightning during last night’s major storms and has been shut down. While it’s unlikely that we will see another 80+ cent spread between regional markets because of this, local residents may have to wait a bit longer to see some relief at the retail level.

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Market Update

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DOE Weekly Report for June 12, 2013

On June 12, 2013 by TradingDesk
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DOE Weekly Report

DOE Weekly Report

 

A Mixed Bag for Energy Prices

On June 12, 2013 by TradingDesk
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It’s a mixed bag for energy prices to start the day, with RBOB trading lower, ULSD higher, and WTI flat as global equity markets stabilize after yesterday’s heavy selling. Energy futures followed US stocks on a roller coaster ride Tuesday, dropping by nearly a nickel early in the morning as the DJIA dropped 150 points on the open. Prices recovered mid-day as the Dow turned positive, then faltered again in the afternoon once the equity selling picked up again. Issues at the St. John NB and Delaware City refineries helped refined products limit their losses heading into the close, and limited overnight selling despite an 8 million barrel build in crude stocks reported by the API.

Yesterday’s action was a great example of the struggle in energy markets, which have been unable to find clear direction for nearly 9 weeks. Meanwhile, fundamentals continue to appear weaker as the IEA released reports saying that US gasoline demand would continue to decline, while global refining capacity would rise by 10% over the next 5 years. In the past, this type of news would certainly drive down the price of crude and refined products, but in the current environment where financial demand for commodities as an investment matters more than the physical demand for consumption, there is no such guarantee. We’ll just have to wait and see if prices can break below $2.70 or above $2.90 to see which way we’re heading this summer.

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Market Update

Global Central Banks Dominating Market Action

On June 11, 2013 by TradingDesk
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Once again, global central banks are dominating market action, with today’s case being the Bank of Japan, who made no change to their monetary policy and were rewarded with a world-wide sell-off in risk assets. Energy prices are trading lower in sympathy with equities and other commodities as traders mourn the end of free money, at least for one day. Adding to the bearish sentiment for energy markets was a new report suggesting that recent advances in shale-drilling technology would increase the world’s recoverable oil reserves by 11%. Just 5 short years since cries of “Peak Oil” helped drive WTI to $147/barrel, the world is now contemplating a surplus that could last decades.

Although both RBOB and ULSD futures have taken back roughly half of last week’s gains, the contracts remain stuck in neutral with no direction hinted at by technical indicators. Without some sort of catalyst, it seems that our trend of going nowhere fast will continue for a 9th week.

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Market Update

Energy Prices Slipping Fractionally Lower

On June 10, 2013 by TradingDesk
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Energy prices are slipping fractionally lower this morning, after a strong performance last week in which both RBOB and ULSD futures saw gains of nearly 10 cents/gallon. US equities finished the week on a strong note, following Friday’s non-farm payroll report which showed essentially no change in the domestic labor situation, and calmed fears that the FED would need to cut back on its easing programs for now, and helped energy markets erase early morning losses.

Despite the strong move for the week, energy prices remain in their trading ranges, and technical indicators are stuck in neutral, with a break through resistance in the low $2.90 range needed this week to prove that the contracts can make a real summer rally. Non-Commercial traders, better known as “Fund money” continued to flow out of the HO/ULSD contract last week, while speculative longs kept pouring into the Brent crude contract. The action in this segment of traders is interesting, perhaps mostly since the opposite flow of funds hasn’t stopped the two contracts from moving together in outright prices. With a relatively quiet schedule for economic headlines this week, with many already waiting for the next FED announcement June 19 to make a move, it looks like the sideways trading pattern may continue for now.

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http://www.bls.gov/news.release/empsit.nr0.htm

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DOE Report for May 5, 2013

On June 6, 2013 by TradingDesk
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DOE Weekly Report

Domestic Supplies Remain Near Record Highs

On June 6, 2013 by TradingDesk
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Yesterday’s DOE report showed a 6.2 million barrel decline in US crude stockpiles, which initially sent the energy futures higher for the third straight session. The gains were short-lived however, as the DJIA had its 2nd 200 point drop in the past week, and as reality set in as to the health of domestic supplies, which as the chart below shows, remain near record highs despite the drawdown for the week.

Although the DOE headline was bullish, product demand dropped following Memorial day, and refiners ran an additional 433,000 barrels/day of crude as several major maintenance projects come to an end. The exception remains in the Midwest, where Chicago-area spot prices have held premiums of 65-70 cents over futures for various grades of 87 unleaded, leaving the market 60-80 cents higher than the rest of the country. The 2nd chart shows that the maintenance at BP & Exxon’s large plants in the area – along with several unplanned outages at other refineries – has left the region with nearly ½ million barrels per day less production than they had just a year ago. While this type of price spread is unsustainable, until those plants come back online, expect Midwest gasoline to remain the most expensive in the nation.

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