Wild Trading Action to Begin March

On March 4, 2014 by TradingDesk
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Energy prices are pulling back, and global equities are soaring, this morning as Russia is sending signals of a softening stance in the Ukraine. Refined products and Brent crude are already trading below yesterday’s low values, while WTI is showing some relative strength, reducing its discount to Brent below $6/barrel for the first time in 6 months.

The wild action to begin March, in addition to the record setting inter-month spreads for both RBOB and ULSD futures leaves the technical picture muddled, and providing little direction going forward. RBOB futures are now back below $3, and risk dropping another 10-15 cents should they be unable to break above that level this week. All ULSD values beyond May are also trading below $3, and puts diesel values at risk for another slide down the backwardation curve towards $2.90.

It seems too soon to call an end to the price volatility sparked by violence in the Ukraine however, because if Russia’s president proved anything last year during the stand-off over Syrian chemical weapons, it’s that he plays political issues like a game of chess, and it may take some time for the strategy to unfold.

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Escalating Violence in Ukraine Pushes Energy Prices Up

On March 3, 2014 by TradingDesk
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Escalating violence in Ukraine – some might call it war – over the weekend has pushed energy prices up more than 2% this morning, while global stock markets are selling off heavily. Some will argue that the rise in oil prices, similar to the rise seen in gold today, is a “flight to safety” move by investors already weary of stagnating economies in the region, while others suggest that this is about the threat to oil and gas deliveries from Russia, the world’s largest exporter of energy products. Nearly ¼ of Europe’s natural gas flows from Russia via the Ukraine, so some demand increase for alternate heating supplies may become necessary, but history suggests that this type of price spike is typically short lived. That said, there is certainly a chance that it could get much worse – think WTI in the $120/barrel range in the near term – if the situation deteriorates.

Investors continued to pour money into the long side of the energy ledger, as of last Tuesday when the latest CFTC data was compiled. WTI set another all-time high for non-commercial bets on higher prices, while Brent is near a seasonal record. While the data is compiled too slowly to make any day to day trading decisions, it will bear watching this week to see if these funds take profits on the spike in prices, or if they continue to let it ride.

It should be noted that the summer-grade spec April RBOB contract takes over the prompt trading position today, which added another 20 cents to gasoline prices before the 7 cent overnight increase. Cash markets across the country will take a few weeks to transition to the tighter specs, so regional price dislocations are to be expected.

CLICK HERE for a PDF of today’s charts

Market Update (3)

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