All About The Spread

On August 21, 2013 by TradingDesk
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Tuesday’s action was all about the spread between Brent and WTI crude, and refined products were whipped around wildly in the wake of that action. WTI plunged on news that the Seaway pipeline was shut, reducing the capacity of flows out of the Nymex hub at Cushing OK, while North Sea production was forecast to drop due to field maintenance which helped Brent stay firm. The spread between the two dropped to its lowest level in 2 months on the news, and sparked a reversal in RBOB and ULSD prices which started the morning with heavy selling. With an hour of trading remaining in the session, both products were near 1% gains, but by the close of floor trading, were near the unchanged mark as traders struggled to find direction. If the new trend holds, it should be bullish especially for ULSD, due to the US’s newfound reliance on diesel exports and its subsequent habit of following the lead of European prices.

Today’s action is mixed, and it looks like we will wait for the DOE report this morning, and the FED’s minutes this afternoon, before making a strong move in either direction. Technicals remain mixed with ULSD looking strong and RBOB weak. $3.10 and $3.00 remain key pivot points respectively.

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Forward Outlook Remains Mixed

On August 20, 2013 by TradingDesk
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Conditions were ripe for the next push higher in Energy prices Monday, as Egyptian and Libyan dramas took a turn for the worse, and the largest refinery in the US announced it had a fire over the weekend. Prices did move higher when floor trading opened, but reversed course mid-day and finished the session with modest losses. That failure to rally on this round of bullish news suggests that with so much money on the long side of the ledger already, it may be difficult to sustain another move. Prices are slipping again today, on the heels of Asian and European stock markets, with many pointing to concerns that the release of the FED’s July meeting minutes tomorrow will finally bring a time-line for cutting back the record stimulus injections over the past four years.

Cash markets were also set to stage a rally Monday, with aggressive bids for gasoline and diesel seen along the gulf coast following the news that Motiva’s refinery in Pt. Arthur – perhaps the most troubled refinery in the country over the past year, in addition to the largest – would be shutting several units following the weekend fire. Like futures however, basis diffs ended the day on a lower note. Refinery runs in the US typically drop this time of year as plants perform maintenance, and apparently buyers weren’t too afraid that the latest plant issue would cause a squeeze on prompt supplies.

The forward outlook remains mixed. RBOB is exactly halfway between its June low at $2.69 and its July high of $3.16. ULSD is closer to the top of its range, but its second failure to break $3.10 in as many weeks gives it a toppy feel with a drop to $3 possible.

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Mixed Markets

On August 19, 2013 by TradingDesk
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Energy markets are a mixed bag this morning, with WTI trying to lead the complex lower, and RBOB trying to hold on to overnight gains with ULSD stuck in the middle. 92L dissipated over the gulf of Mexico this weekend, and although it will still likely bring heavy rain to the Southern US, there is no threat to production assets in the gulf coast. TS Erin is also dying over the Atlantic and is likely to break up completely over the next day or two. Unfortunately another system is forming off of the coast of Africa, and forecasters are still calling for a busy few weeks of storm activity as we move through the peak of Hurricane season.

Middle East supply concerns continue to keep a bid under the market, with Libya’s 2 largest export facilities still closed, despite government claims they would open next week. The Suez canal has not had any disruptions despite the violence on land, but speculators are holding near their record high long positions in both WTI and Brent crude, apparently still betting that these issues will lead to higher prices. Both RBOB and HO positions were cut back last week, creating an interesting dichotomy in the market, where investors are eager to be long crude, but not its products.

$3 remains pivotal for RBOB this week after failing to breach that level twice last week. ULSD futures look ready to test $3.10 again, with a break setting up a move towards $3.20.

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Markets Eerily Quiet

On August 16, 2013 by TradingDesk
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It’s a typical Friday in August, with markets eerily quiet despite a host of real and perceived threats to energy supplies. Egypt’s conflict continues to escalate, with today marking a key inflection point as the former president calls for “Day of Rage” protests, while the army deployed to protect Cairo. Libya’s port drama has also escalated, with protesters now threatening to load crude cargoes for themselves, and the government threatening to sink those cargoes if they do. Fortunately for consumers, it appears that neither of the active storms in the Atlantic will become a major threat to production or refining assets, although 92L could still cause flooding across the already-saturated southern US.

Given all of the potential supply disruptions, it seems unlikely that energy prices will stage any sort of significant sell-off today, making the key question whether they will stage a major rally. If RBOB can break and hold above $3, and ULSD can break and hold above $3.10, then the stage is set for a strong rally heading into the fall. Gasoline prices will struggle to maintain momentum however given a high level of stocks and sluggish demand, while diesel prices will benefit from increased exports to Europe and harvest demand in what is predicted to be one of the largest global crop production years ever.

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Market Update

Fears of Supply Disruptions

On August 15, 2013 by TradingDesk
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Fears of supply disruptions are keeping a bid under energy markets, after 2 different tropical waves were given high probabilities of developing into tropical storms this week, and as violence continues to escalate in Egypt. The first storm system (92L) is currently predicted to hit the US Gulf Coast between Louisiana and the Florida panhandle as a tropical storm this weekend. The 2nd system was just upgraded to Tropical Storm Erin, but early projections suggest it will stay out to sea. While the Suez canal and all Egyptian ports remain open, markets remain wary of what lays ahead as tensions mount.

Brent Crude reached a 4 month high overnight, and RBOB futures briefly traded over $3 before pulling back to trade flat. Technical indicators are shifting into bullish territory with more studies pointing higher each day. There are only 2 more pipeline cycles for summer grade RBOB, which will make trading in the September contract extremely volatile in the back half of August, since forward cycle specs are a much higher, and cheaper to produce, RVP which incentivizes refiners to limit their production of August barrels. The October futures contract is already trading nearly 14 cents cheaper than September.

ULSD futures continue to point higher with $3.10 marking the next pivotal level for diesel prices. If the storms on land and at sea settle down, we could see a major pull back in prices, but until that happens, all signs seem to be pointing higher.

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Market Update and DOE Weekly Report

On August 14, 2013 by TradingDesk
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DOE Weekly Report

Refined Products Conflicting

On August 13, 2013 by TradingDesk
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Monday morning, energy markets were selling off, erasing most of Friday’s gains, only to reverse course following a Reuters report that claimed European refiners were cutting more than ½ million barrels/day of production due to weak cracking margins driven by the recent rise in crude prices. European gasoil led the move higher, which helped ULSD futures break and hold back above $3. Strengthening backwardation in crude and products suggests that the market views the most recent bounce as a short-term supply squeeze, rather than a long term solution to the growing output, slack demand environment of the past year.

The action this week will go a long way in determining if energy prices will make a significant rally heading into fall, as both WTI and Brent crude face technical resistance around the $108-$110 range, while Libya’s oil minister said this morning that they anticipate one of the two export facilities closed by protesters to reopen in a few days. Given the overbought condition of crude, and the excess speculative length already in the market, a failure to break resistance suggests a correction back down to $100 may be in the cards. Refined products are conflicting, with ULSD poised to make another run at $3.10, while RBOB still looks weak unless it can get back to $3.

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Charts Continue to Move into Bearish Territory

On August 12, 2013 by TradingDesk
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Energy futures staged a furious rally Friday, bouncing off of technical support and helping to relieve an over-sold position, managing to cut the week’s losses in half by day’s end. RBOB was still down a dime for the week, and ULSD futures lost 8 cents. Despite the bounce, charts continue to move into bearish territory and time is running out for a late-summer rally. Strikes in Libya, which have closed the country’s two largest export facilities, continue to help crude oil futures firm, although both Brent and WTI are showing signs of having topped out.

Speculative positions were little changed in the past week, and it appears that despite the recent increase in volatility – or perhaps because of it – large traders are not yet ready to unwind the record length in crude futures. These positions, coupled with an amply supplied global market, have caused several analysts to call the crude market a bubble, with much lower prices ahead when this hot money heads for the exits.

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Refined Products Rally

On August 9, 2013 by TradingDesk
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Refined products made a furious rally in the last hour of trade Thursday, and although they still finished in the red, the damage was limited to a fraction of a percent, after being down more than 4 cents for most of the day. Prices are mixed today on reports from the IEA that reduced its global oil demand forecast again, and noted that North American crude output gains were more than enough to offset struggles in OPEC countries to meet their quotas. Meanwhile, protests in Libya continue to crimp the crude flow, which is now estimated to be back down to levels not seen since their 2011 civil war.

With near-record speculative length camped out in Crude futures over the past couple of weeks, the reaction to this week’s losses will be very telling. It is taught that when markets turn a trend, it represents the transfer of positions from weak hands to strong ones. If we begin seeing the speculative funds heading for the exits, that may be exactly what we’re witnessing right now, and much lower prices may be on the way.

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Market Update

Energy Prices Are Crumbling

On August 8, 2013 by TradingDesk
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Energy prices are crumbling this week, with both RBOB and ULSD futures down 12 cents so far, and several key support levels that held up throughout July have been left by the wayside. The critical tests for the remainder of the week will be if RBOB can break below a cluster of support formed by its 200 day MA, and the 62% Fibonacci retracement level of its summer rally. ULSD futures must reclaim the $3 mark if they’re to avoid another move to the downside, with only a small hurdle at $2.92 in between current values and a move to $2.80.

Yesterday’s DOE report was a non-event, with only fractional changes in inventory and demand levels across the board. Refinery runs dipped, but remain well above any levels we’ve seen this time of year, and without some sort of disruption – like last year’s Hurricane Isaac, which shuttered more than 1 million barrels/day of production for 2 weeks – it appears that a major gasoline glut is looming, and exporters may have their boats full with diesel.

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