ULSD Leading a Rally in Energy Prices

On January 21, 2014 by TradingDesk
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ULSD is leading a rally in energy prices this morning, as the East Coast of the US struggles to catch up on supplies following the record-setting cold snap 2 weeks ago, and as concerns over another winter storm begin to grow. A week ago, the spread between the February and March ULSD (HO) contracts was 1.5 cents. Today that spread stands at 9 cents, nearly doubling the record high since the contract changed to the ULSD specs a year ago.

Brent crude is also rallying by 1.5%, with an IEA report calling for global demand growth acceleration receiving credit for the move in several headlines. The balance of this week’s action will go a long way in determining if this latest move is the start of a spring rally, or just a technical bounce off of support levels delaying a further slide in prices.

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ULSD (HO) futures Prompt/2nd Month Spread

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Quiet Morning for Energy Prices

On January 20, 2014 by TradingDesk
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It’s a quiet morning for energy prices, as the Nymex floor will be closed today, along with banks across the country to celebrate MLK day. It may be fitting for the banks to have a day off from trading commodities, just as the debate heats up over ending a 10 year old rule that allows Wall Street banks to trade in physical commodity markets. The first chart below shows the spike in trading volatility over the decade in which banks began trading, and a major question for the next 10 years is whether or not we return to a period of lower volatility if those banks are forced out.

Last week was a tale of two markets in refined products as ULSD futures rallied off of technical support and ended up 8 cents for the week, while RBOB continued to slide, and ended lower by a nickel. What is notable for diesel prices is that the increase have come almost entirely in the prompt trading months, while forward months have actually continued to slide. The chart below shows the move over the past week/month/and year, to display that despite the rise over the past week in near-term values, ULSD prices 1 year forward have reached new lows. This type of action suggests the market is reacting to a short term issue, either fundamental or financial, and leaves the diesel market susceptible to another selloff when the squeeze is over.

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Energy Complex Sells Off

On January 17, 2014 by TradingDesk
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The energy complex sold off Thursday with only ULSD continuing yesterday’s rally settling up about half a cent; crude lost about a quarter, RBOB settled down a little over 3 cents. Crude traders seemed to pull back from their overreaction Wednesday as a couple reasons for the inventory draw (gulf weather and a barge back-up in Louisiana) may be remedied in the near future. Inclement weather continues to keep drivers off the road and RBOB prices down.

NYHB physical prices felt the reduced refinery runs, decrease in distillate stocks, and strong overseas distillate demand yesterday and posted a 3.5 cent gain at the NYMEX settle.

ULSD broke through a couple of technical resistances yesterday and is poised to test the $3.00 level which is the last bastion of hope from a 10-12 cent run-up. RBOB, settling at levels not seen since mid-November, has about a 10 cent range to play in ($2.55-$2.65) before finding some support/resistance and further price guidance.

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EIA Release Dominates Trading

On January 16, 2014 by TradingDesk
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With few headlines, the EIA release dominated trading yesterday; a sizeable draw in WTI inventory boosted the energy complex despite an almost equally large build in gas stocks. WTI settled with a 1.7% gain, the largest trading day seen since the first of the year, and brought ULSD futures along with it to settle at +1.5%. RBOB also posted a gain (+.0040) for the day in the face of decreased demand, specifically in PADD 1, due to cold weather. Refineries along the east coast also saw a staggering 12% drop in refinery runs last week rendering their total capacity at 75% utilization.

Technically speaking, yesterday may have thrown a wrench in the bears’ plan for lower prices in the short term with some indicators trying to favor the upside. HO will have to break through a few major resistance levels around the 2.99-3.00 range in order to continue yesterday’s run-up, RBOB faces similar resistance around 2.70.

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DOE Weekly Report

On January 15, 2014 by TradingDesk
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DOE Weekly Report

Another Mixed Bag for Energy Prices

On January 15, 2014 by TradingDesk
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We are facing another mixed-bag day for energy prices, after Tuesday’s “bend, don’t break” trading, which has become a pattern so far in 2014.

RBOB futures are trying to lead another sell-off after the API reported a 5 million barrel build in US gasoline stockpiles last week, although the contract failed to stay below $2.60 after briefly breaching that level yesterday. ULSD and WTI meanwhile are holding on to modest gains, as that same report showed draws in stockpiles for both products, and technical support continues to hold. Brent crude continues to slide, reaching its lowest levels in more than 2 months, with many pointing to increased Libyan exports and the resumption of production in a major North Sea oil field for the move.

Technical studies continue to give mixed signals, but more indicators are rolling over to favor the bears near term. $2.60 and $2.90 remain the key pivot points for RBOB and ULSD respectively.

Today’s DOE report will be watched closely to determine how dramatically last week’s weather impacted the supply/demand equation. We saw a variety of issues at terminals and refineries across the eastern US, so a drop in runs is to be expected, but what remains unseen is how badly driving demand suffered during that time.

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Energy Markets on the Cusp of a Major Move Lower

On January 14, 2014 by TradingDesk
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Energy markets remain on the cusp of a major move lower, after selling off in sympathy with US equity markets Monday. RBOB gasoline futures led the move lower, erasing last week’s gains and touching their lowest levels of 2014. ULSD, WTI and Brent are all trading fractionally above their January lows however, and there is a limited window of time for values to break down before the seasonal influences of a traditional “Spring Rally” in energy prices take hold. Peg the $2.60 range for RBOB and $2.90 for ULSD as “must hold” levels if the bulls are to regain control.

Bearish influence continue to appear fundamentally, as Libya has returned to 600,000 bpd of output, from 250,000 a few weeks ago, and mediators work to restore the other half of the country’s production. Plans for an agreement on Iran’s nuclear program – and how subsequently to return some of its shuttered crude output to the market – seem to be progressing. US production of shale oil is scheduled to accelerate in the first quarter of 2014.

Political influences are also beginning to favor the bears. This week, the FED is expected to make its first formal move towards changing its regulations for large banks’ commodity trading operations. Although a final plan isn’t expected until early 2015, the mood against “too big to fail” banks being allowed to influence physical commodity markets has shifted notably in the past year, and could have long term consequences for prices as those banks exit the trading arena.

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Energy Futures Survive Another Attempted Sell-Off

On January 13, 2014 by TradingDesk
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Energy futures survived another attempt at a sell-off Friday, bouncing off of the same levels that held during Thursday’s session, and ended the week fractionally higher, leaving prices stuck in a sideways pattern. Charts continue to give a mixed message, although more indicators are moving into bearish territory, after relieving an over-sold condition during last week’s back and forth trade. Despite being only 2 weeks into the year, we appear to be approaching a major pivot point on several charts, which could drive price action through the spring, or beyond.

Investment & Hedge funds cut their net long positions in the first week of the year, coinciding with the sharp sell-off in energy prices, and giving some credence to the theory that the price run-up over the last few weeks of 2013 was helped by these funds trying to “window dress” their portfolios by adding to energy positions ahead of year end. Brent crude had the most notable change, as managed (fund) money cut their bets on higher prices by nearly 29% on the week.

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Prices Trying to Move Higher

On January 10, 2014 by TradingDesk
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For a few minutes Thursday afternoon, it appeared that energy prices were starting a major push lower, as RBOB and ULSD futures moved to new lows for the month, and WTI reached its lowest level since May. Buyers showed up in the last half hour of trader however, and most of the losses were reversed by the end of the day. This morning, prices are trying to move higher on little news, so it may be a technical reaction to the oversold condition in each of the contracts. We remain on the cusp of much lower prices should technical support break down near term. If it fails to do so, expect an attempt to start a spring rally before long.

The December Jobs report showed the slowest US job growth in 3 years, and the largest number of people not in the labor force in 35 years. So far, the reaction to the bad news has been modestly positive for equity and energy prices – with weather taking much blame for a lack of jobs and fuel demand – and presumably due to the theory that bad news will keep the FED’s monetary stimulus in place for a longer time.

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THE EMPLOYMENT SITUATION — DECEMBER 2013

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

The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and wholesale trade but was down in information.

HOUSEHOLD DATA

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Demand for Gasoline and Diesel Plummets

On January 9, 2014 by TradingDesk
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Another week of exports (net of imports) north of 2 million barrels per day was not enough to keep refined product stocks from swelling, as demand for gasoline and diesel – as it often does in January – plummeted. The report from the DOE helped push RBOB and ULSD futures lower on the day, although several spot markets across the country trimmed those losses as cold-induced refinery issues continued to pop up throughout the Midwest.

Prices have moved sideways this week, after a sharp sell-off to begin the year. At this point, despite prices rising modestly today, it appears on the chart that this is likely to be a bearish continuation pattern, meaning we should see lower values once this period of consolidation is finished.

Washington DC is becoming center stage for 2 major debates over the next week that could have long-term consequences for the energy industry. A group of US refiners are meeting to consolidate their lobbying efforts against lifting a ban on US Crude exports. Meanwhile, the senate has announced a hearing next week to discuss the role of Wall Street banks in physical commodity markets. While there is likely to be more hot air than results from both events, either issue has the potential to have a major long term influence on energy prices.

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