A Day of Extremes for Energy Prices

On March 14, 2014 by TradingDesk

Thursday was a day of extremes for energy prices, as ULSD futures dropped to their lowest level since November, while gulf coast RBOB prices surged 22 cents (despite RBOB futures dropping on the day) on the first trading day for the summer RVP Spec. Ethanol continued its wild ride, with futures adding 20 cents this week, now trading north of $2.50 in the Chicago hub, with some regional markets trading above $3.50. The price dislocations among all refined products across the country show just how vulnerable the nation’s supply network can be to disruptions from weather or EPA requirements.

The technical outlook continues to favor lower prices over the next few months, and weakness in global equities (Japan’s Nikkei index dropped 3% overnight, following the worst day for US stocks in a month) is adding to the negative sentiment. ULSD futures have moved into “over-sold” territory however, and are having what appears to be a profit taking/short covering bounce this morning, while RBOB values are stagnating. $2.90 remains a pivotal level for both contracts for determining direction over the next few weeks. New Russian military exercises are also cited for some modest strength in Brent and WTI this morning, as traders are reminded that while the tensions in the region have eased, they have not gone away.

The International Energy Agency (IEA) suggested that oil prices would ease in 2014 as new production from Iraq and Iran (which has already reached a 1-year high in exports following reduced restrictions due to its agreement with the West over its nuclear program) would offset any global demand growth. The agency also predicted that the Ukrainian drama would not have any long term impact on physical crude oil supplies or prices.

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