Congress Seizes Control of Headlines

On September 30, 2013 by TradingDesk
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Congress has seized control of the headlines, as the debate over a government shutdown reaches its final hours. While last minute deals have come to be expected, it is unclear if there will be fall-out – like the US Debt downgrade in 2011 – that could further roil global markets. How the action in Washington plays out could be the determining factor on whether or not energy prices can continue their September slide, or if last week’s bounce puts a near term floor under prices.

RBOB and ULSD are both trading a nickel above last week’s lows, and short term technical indicators have moved into neutral territory, with a slightly bearish bias longer term. If the September lows of $2.60 and $2.93 respectively break down, expect another 10-15 cents of downside before the next layer of support is found. $2.70 and $3.00 proved solid resistance last week to any attempt to rally.

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Prices Pulling Back Modestly

On September 27, 2013 by TradingDesk
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The energy complex limped quietly higher Thursday following an equally tame equities market as debt limit banter and lack of pertinent news put traders to sleep. Brent-WTI spread traded sideways as well, stuck in the $5-6 range. Prices seem to be pulling back modestly this morning with RBOB and ULSD down a penny each at $2.6919/gal and $2.9925/gal respectively and WTI down about $.05/bbl.

Spot markets also took the day off with no product’s basis level offering to move more that 2.5 cents in either direction. Gulf coast prices didn’t budge as OPIS discussed an increase in Jones Act compliant tankers being ordered and built to deliver barrels to and from US ports. The idea behind their production would be to quickly fill supply voids along the coasts in the event of refinery disruptions or major price dislocations. An increase in product agility via US to US barge shipments could result in some market redistricting in the near future.

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Crude Prices Shocked Into Negative Territory

On September 26, 2013 by TradingDesk
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A surprise draw in Cushing stocks, reported by the DOE, shocked crude prices into negative territory after spending early yesterday morning up with refined products. New hopes for US-Iran negotiations broke from the Rouhani camp and increases in Libya’s recovering supply structure added additional selling pressure to crude.

PADD 3 (USGC) reported almost a 5% decrease in refinery runs due to its gas grade’s record discount to RBOB for this time of the year. Although these production cutbacks were predictable, they did bump prices after the numbers were released only to be brought back to pre-DOE levels later in the afternoon. RBOB settled up $.0137 to 2.6739, ULSD up $.0121 to 2.9731. The move keeps refined product prices about a nickel away from significant technical support and resistance levels.

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DOE Weekly Report

On September 25, 2013 by TradingDesk
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DOE Weekly Report

Prices Stage an Impressive Comeback

On September 25, 2013 by TradingDesk
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It appeared that energy prices were on the verge of a major melt-down this week, until operating issues at a handful of refineries – including the 2 largest in the US – and a cold shoulder from the new Iranian president at the UN assembly helped prices stage an impressive comeback. ULSD futures are up 7 cents from yesterday’s lows, and RBOB prices are up almost a dime. Technical indicators suggested both markets were due for a bounce, so we’ll need to wait and see if this latest pop is simply a correction in a larger bearish move, or the end of the selling for 2013. $3 will become a major pivot-point for ULSD, and $2.70 for RBOB. Both levels were tested overnight, and so far have held resistance.

Today’s DOE report will be watched closely to determine if plunging margins, particularly for gasoline, have forced refiners to cut their run rates, which had been at historically high levels. With global demand still sluggish, and technical hinting that more selling is due once this bounce runs out of steam, economic run cuts may be the best hope for the bulls.

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Crude Pushed to Lowest Closing Since July

On September 24, 2013 by TradingDesk
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A combination of weak technical and fundamental influences pushed crude oil to its lowest closing values since July Monday, and RBOB made fresh lows for the year. The sell-off continued overnight, although news of a fire at Marathon’s Galveston Bay refinery (formerly known as the beleaguered BP Texas City plant) has staunched the move in gasoline for the moment. $100 for WTI will become a major pivot point to the downside, with RBOB aiming for its 2012 lows in the $2.53 range, and ULSD trying to hold above $2.90 to prevent a slide to $2.70.

Assuming that Middle East tensions don’t flare up again (always a possibility) the energy market appears to be entering at least a short-term bear market. The key question this week – which won’t be answered until Friday – is if the most recent slide in prices has forced more liquidation in what was a record net-long position in WTI and Brent crude by the speculative community which includes hedge funds and major banks. If that money heads for the exits, the 15 cent drop in products over the past week may seem tame in comparison of what’s to come.

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Energy Futures Start the Week with Modest Selling

On September 23, 2013 by TradingDesk
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Energy futures are starting the week with modest selling, following a volatile week that saw 5+ cent swings in 4 of the 5 trading sessions. Despite the strong bounce Wednesday, following the FED’s “no-taper” decision, ULSD values dropped 11 cents for the week, and RBOB was down 8.5.

Charts are rolling over into bearish territory, with both RBOB and ULSD nearing critical support levels that will likely determine if we drop another 10-15 cents to finish the month. With Libya’s exports now at 40% of their post-war, pre-protest levels of 1.6 million barrels/day, Iraqi and North-Sea field returning from maintenance, and high RVP gasoline season upon us, fundamentals are offering little support to prices at the moment.

Friday’s commitment of traders report shows that large speculators cut their long positions across the board ahead of that announcement, although both WTI and Brent continue to hold a historically large net-long bias. The influence of banks on commodity prices is coming under scrutiny again this week, as a deadline for Goldman Sachs and Morgan Stanley to have their commodity businesses in compliance with FED requirements has come and gone with no announcement as to their future. Why they were ever allowed to be out of compliance is a bit of a mystery. Expect the anti-bank drumbeat to continue to grow louder (note JP Morgan’s most recent settlement for violating trading rules) until some decision is made. Assuming some portion of the record net-long positions in crude is held by these banks, it could be another bearish factor for energy markets if they’re forced to exit.

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Prices Resume Downward Trend

On September 20, 2013 by TradingDesk
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Yesterday prices resumed their downward trend they set earlier in the week that was interrupted by the Fed’s decision to keep giving away money. RBOB gave back about half of Wednesday’s gain, HO gave it all back and the Brent-WTI spread stalled around 2 dollars. Lack of relevant news out of the middle east or US policy (monetarily or otherwise) failed to provide support for an extension of Wednesday’s gains. API’s report showing a large scale break-down in petroleum demand may have also assisted a general decline in refined product prices.

Tropical storm Humberto dissipated out over the western Atlantic yesterday as attentions are now turning to a large tropical depression in the Gulf. NHC asserts that it has a 60% chance to turn into a tropical cyclone with some projections taking it right into the refining heart of the US.

RBOB has about a nickel left to fall in order to test this year’s lows and about 7 cents to climb before reaching a major resistance level. ULSD will hit support in the high 2.90s with resistance sitting 7 cents away as well. Interaction with these levels combined with oversea developments will most likely decide further price direction.

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Fed Announcement Results in Convincing Gains

On September 19, 2013 by TradingDesk
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The energy complex started off confused yesterday with RBOB showing slight gains and ULSD continuing its two-day losing streak. The DOE reported inventory draws in both products along with crude that gave prices a bit of a bump but it wasn’t until the Fed announced they will not begin the taper yet that really kicked things into gear. Commodities, equities, and metals posted convincing gains for the day: NYMEX gas futures settled up a steep 8 cents, ULSD up about half that, WTI added $2.65/bbl. Although Brent crude also printed gains today, its premium to WTI shrunk to just over $2/bbl.

It will be interesting to see how prices will react as they refocus on the some fundamental issues still looming. Libya is set to two oil fields today, totaling about 370k barrels per day of output, which still puts the total country’s capacity under half of its pre-war output. If all goes as planned and 700k bbls/day are added back into supply by Friday, energy prices could resume their slide.

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Entire Energy Complex Sells Off Sharply

On September 18, 2013 by TradingDesk
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Gasoline prices fell to their lowest level of the year Tuesday, as the entire energy complex sold off sharply following a trio of “good” stories in the Middle East. Libyan oil production is scheduled to rise to 700mb/day by Friday, Iran’s new President reportedly offered to shut one of their nuclear facilities in exchange for a loosening of their oil embargo, and military action in Syria looked less likely. Technical support levels broke down for both RBOB and ULSD futures mid-morning, while WTI and Brent managed to salvage some of their day. With products plunging and crude limiting its losses, refiners have taken a hit to their margins over the past week as the chart below shows. Although each refinery is unique, it appears that many are now below the break-even rate whether they are supplied via land-locked (WTI) or waterborne (LLS) crude. With high RVP season now upon us, there is little hope for a rebound, particularly in gasoline margins, and we are likely to see economic-based run cuts in the near future.

The FOMC announcement today continues to capture the bulk of financial headlines. While energy prices were attached at the hip with equities for the first 4 years of FED liquidity injections (2009-2012) they have decoupled in 2013, leaving the impact on refined products less clear. What is becoming clear is that whatever happens today, with both technical and fundamental factors looking weak, it may take a substantial change to keep energy prices from falling further.

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