RBOB Values Move Higher

On October 8, 2013 by TradingDesk
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All the pieces were in place for the next move lower in energy prices Monday morning, and RBOB gasoline futures traded at their lowest levels of the year shortly after the Nymex floor opened. 24 hours later, RBOB values are 9 cents higher, and no one is exactly sure why.

News that the Seaway crude pipeline was shut briefly was blamed by many for the bounce in prices across the board, although the shutdown was only an hour in duration and “shouldn’t” justify that type of a swing. Without data from the CFTC, we won’t know if it was simply a large bank or fund deciding that now was the time to invest heavily in energy contracts, or if it was simply algorithmic trading models that found a “buy” signal.

Whatever caused the move, RBOB and ULSD now look to test the upper end of their recent trading ranges, rather than the bottom. Peg $2.70 as key resistance for RBOB and $3.05 for ULSD. WTI is stuck between $102 and $104.

US Refiners continue to face weak margins, and some may be operating in the red, depending on their crude slate and ability to export refined products to limit their Renewable Fuel Standard (RFS) obligation. While nationwide supplies are ample, pockets of supply disruptions along the South East may continue if these refiners are forced to cut runs.

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Prices Drop as Storm Fizzles

On October 7, 2013 by TradingDesk
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TS Karen fizzled out over the weekend, and was a non-issue for energy interests, which have already re-manned most of the drilling and offloading sites shut ahead of the storm. With fears of supply disruptions easing, the only threat now is that heavy rains across the South East could slow gasoline demand, and put more economic pressure on gulf coast refiners, who are already dealing with negative gasoline margins.

The political theatre in Washington showed little sign of progress over the weekend, which is pulling global equity markets lower today, and have helped energy prices drop by as much as 1% overnight. Despite today’s losses, the consensus remains that an 11th hour solution to the debt ceiling will be reached – just like it has numerous times before – and the jawboning taking place is simply the politicians’ way of adhering to the rule of “never let a good crisis go to waste.”

The CFTC did not release its Commitments of Traders report Friday, but the ICE showed that speculators continued to trim their net-long positions in Brent crude last week, although the total bet on higher prices remains well above last year.

RBOB tested its lows for the year at $2.57 overnight, but that area has held support so far. Charts for gasoline continue to point lower. ULSD appears a bit stronger technically, with a few indicators suggesting that a floor has been put in at the low $2.90s. Its failure to settle above $3 last week, however, has it firmly stuck in neutral for now.

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Government Shutdown and Tropical Storm Dominate Headlines

On October 4, 2013 by TradingDesk
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The US Government shutdown and Tropical Storm Karen are dominating headlines again today, although neither situation is having a major influence on prices as it appears traders will either just wait and see how things play out, or take the day off.

Non-Farm payrolls in September…well, we don’t know, since the BLS is not releasing reports during the shutdown. There is no confirmation yet on if simply taking a guess at the number is actually less accurate than the official reading. The CFTC will not be releasing its commitment of traders report this afternoon. It will be interesting to see if the lack of data will make markets more volatile, or less.

Karen has become less organized as it moves across the Gulf of Mexico, and is no longer forecast to reach hurricane strength. There are still risks associated with the storm, but both futures and basis markets are now behaving as though they don’t expect any significant disruptions. Chevron Pascagoula, Shell Saraland, and the refineries along the Mississippi river in southern Louisiana are still in the theoretical path however, so it’s too early to say that refined products will escape this storm completely.

Both RBOB and ULSD attempted to rally yesterday once the storm was named, but they gave back essentially all of their gains by the close. Charts suggest that we’ve entered a side-ways trading range, with $2.92-$3.05 holding ULSD prices and $2.60-$2.70 containing RBOB. Until we see a breakout, expect choppy trading to continue. Longer term charts still favor lower prices over the next few months.

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Energy Futures Stage a Rally

On October 3, 2013 by TradingDesk
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After bouncing off of technical support Tuesday, energy futures managed to stage a rally Wednesday, fueled by news that the Russian embassy in Libya was attacked and that the southern portion of the Keystone XL pipeline would be ready ahead of schedule. The pipeline should be bringing crude from Cushing OK to the Gulf Coast by the end of the year, and has caused some analysts to predict that WTI will once again command a premium to Brent in 2014.

The US Dollar index dropped to its lowest levels since February, as the government shutdown/debt ceiling drama played on, which also helped put a bid under commodity prices. Now that prices are rising, watch resistance at $110 for Brent, $104 for WTI, $3.01 for ULSD and $2.67 for RBOB for signs that this latest move is anything more than a correction following a month-long drop.

Refiners cut runs by another 150mb/day in the past week, but in total run-rates remain near all-time highs for this time of the year, and record exports of diesel fuel continue to off-set record production levels. Gasoline stocks are ample nationwide, but regional shortages persist due to pipeline delays following the summer RVP transition.

Tropical Storm Karen should be named in the next few minutes, with eastern Louisiana to the Florida panhandle still forecast to be in its path. While few models are suggesting it will reach hurricane strength, drillers in the Gulf of Mexico have already begun removing non-essential personnel. Severe rains could be the bigger threat to the saturated South Eastern US, and at this point, there do not appear to be any refineries that will be shuttered due to the storm.

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DOE Weekly Report

On October 2, 2013 by TradingDesk
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Bend Don’t Break Trading Continues

On October 2, 2013 by TradingDesk
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Energy futures continued their bend-don’t-break trading Tuesday, with RBOB settling at a new low for the year, albeit 4 cents higher than its intraday low. ULSD found support in the area of its August and September low trades, while both WTI and Brent managed to stay above their “must-hold” technical levels at $101 and $107 respectively. The near-term trend for all contracts is still pointing lower, although some consolidation after 5 weeks of selling seems likely. If prices do break down however, there is little on the charts to prevent another $10 drop in crude and 20 cents for products.

There is no progress to speak of in the congressional deadlock, and the partial shutdown of the US Government has extended to its second day, and US Equities are slumping overnight as a result. Fortunately for data junkies, the Department of Energy said it will still release its weekly petroleum statistics today at its regular time. No word yet on if the reduced labor force will make for a less, or more, accurate report.

A storm in the Caribbean is still given a 50/50 chance of becoming Tropical Storm Karen this week, with a wide area from Eastern Louisiana to the Florida panhandle in its path. Chances of the system exceeding Tropical Storm status are much lower according to most forecasts, so it’s unlikely to have a significant impact on production and refining assets in the area, although a short-term disruption to off-shore wells may be enough of an excuse for the sell-off in crude to pause for a few days.

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US Government Starts Partial Shutdown

On October 1, 2013 by TradingDesk
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The US government has started a partial shutdown for the first time in 17 years, after congress was unable to pass a resolution to continue funding operations. So far the market reaction, from global equities to commodities, has been muted, as it’s believed this will be a temporary delay, and won’t have long-term consequences. The drama in DC will likely continue dominating headlines, while Chinese PMI data – showing that the world’s engine for growth continues to stagnate – has captured little attention.

As we start Q4, energy prices are on the cusp of a technical breakdown that could spark another wave of selling. Brent crude is forming a bearish wedge, with $107 becoming the critical pivot point, while RBOB is testing its lows for the year. Charts are giving slight favor to further selling, although the trend is not overwhelming. Although ULSD has shown some strength relative to the rest of the energy complex during the September sell-off, news that Saudi Arabia’s new refinery exported its first diesel cargo yesterday may temper the enthusiasm of buyers who were cheering news that the US had set another all-time record for diesel exports last week.

Perhaps the biggest victim so far of the Govt. shutdown has been the US Dollar. Typically, a weaker dollar would mean higher energy prices, but as the chart below shows, that has not been the case over the past two months. If this relationship doesn’t return, there appears little technically or fundamentally to support refined product prices near term.

HO/ULSD futures (purple line) have typically moved inversely to the USD (gold line) over the past several years. Since August however, the two have moved in the same direction. With the USD at a 7 month low, this could be bearish for ULSD prices.

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