Energy Prices Waiting To See Where The Hot Money Lands

On March 26, 2013 by TradingDesk

Yesterday morning, the world seemed ready to move past the latest European financial dilemma after an 11th hour deal was reached in Cyprus Sunday night. US markets surged higher at the open, with energy futures aided by news of an upset at PBF’s refinery in Delaware City, and the S&P 500 was just 1 point from its all-time closing high (11 points from its highest intra-day trade) a few minutes into the session. The markets reversed course rapidly mid-morning, when the newly appointed Dutch leader of the Euro zone finance ministers reported that the Cyprus bailout package was a “template” for other countries dealing with the financial crisis. While that statement was later retracted, the damage had already been done, as the man already dubbed the “two lips from Amsterdam” had done with a single word what leaders in the Euro-zone had been trying to prevent for years, suggesting that a crisis in one nation could directly impact the others and that bank deposit seizures may be more than a unique event for a tiny island nation.

RBOB and HO both erased 4-5 cent gains, following the plunge in US stocks mid-morning, and continued to move lower once it was reported that the PBF issue was not impacting production. During the wild price swing, both near-term resistance and support levels held up, containing the action in both directions. Descending triangle patterns are forming for both refined product contracts, with a break below $3.05 for RBOB and $2.85 for HO setting up the chance for significant losses. Meanwhile WTI’s discount to Brent crude has shrunk to $12.75/barrel, from $23 a month ago, its lowest level since June. The move is attributed to the rising production of US shale oil – particularly the increased ability to move that oil via rail car to the coasts – although the rapid flight of speculative money out of the Brent contract is surely contributed. What is not yet clear is if the hot money heading for the exits in Brent is related to the latest European banking drama playing out on live TV.

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