A Segmented Global Energy Market

On January 24, 2013 by TradingDesk

WTI dropped $1/barrel in 10 minutes Wednesday, following a report that the Seaway pipeline – which was reversed last year and now carries 400,000 barrels/day of crude from the Nymex hub at Cushing OK to Houston – was forced to cut its rates by more than half due to an issue at a pump station. Refined products pulled back in sympathy, but continued to follow the lead of European contracts and ended the day with gains despite the drop in domestic crude. Overnight, the pipeline reported that the issue should be fixed within a week and we’ve completely reversed course. WTI is up 70 cents, while RBOB and HO are following Brent crude lower. This week’s action is a good example of how segmented the global energy market has become. With some US and Canadian grades of crude oil trading for $1.50/gallon less than several international grades, it’s arguable that location has never been more important than it is today for everyone from crude producers to end users.

Charts still continue to point to higher prices for refined products, but warning signs of an overbought market do exist. RBOB hit its 200 day moving average yesterday, and promptly dropped 3 cents. Likewise, HO continues to be unable to settle above $3.08 despite trading over that level several times throughout the day. This action has the potential to create a coiled spring effect on prices that will propel us higher if resistance breaks, or it could be a sign of the end of the recent rally. There’s no way – that I’ve found at least – to be sure what this means until the action plays out.

CLICK HERE for a PDF of today’s chart

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