Energy Futures Consolidating This Week

On February 25, 2014 by TradingDesk

Energy futures are consolidating this week, pausing the February rally as markets from Natural Gas to ULSD to Ethanol all struggle to dig out from logistical problems brought on by winter weather. Pricing dislocations in terms of both time and location remain widespread across the US, as traders try to balance extremely tight prompt supplies in many markets, compared with ample output that should heal the situation as spring takes hold.

We don’t discuss Natural Gas futures too often, but after breaking a 4 year high at $6.49 yesterday, only to drop 22% to trade at $5.05 today, they certainly bear mentioning, particularly since the struggles witnessed in terms of supply shortages have echoed throughout the ULSD market for the past 2 months. Likewise, prompt Ethanol in NY Harbor, crippled by rail cars being unable to move efficiently from the Midwest due to the snow and cold, has traded near the $3 mark, nearly 1/3 higher than prices at the end of 2013.

In relative terms, ULSD prices have been somewhat quiet, although record spreads between prompt and forward months, and extreme volatility in those spreads, paints a clear picture of how vulnerable the country’s system of transporting fuel from refineries to people really is.

$3 remains the pivotal mark for April RBOB and ULSD contracts. If support at this level holds, we can expect the spring rally to continue. If that level fails, both contracts look to drop 20 cents as supplies recover and US demand remains stuck in neutral.

CLICK HERE for a PDF of today’s chart

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