Entire Energy Complex Sells Off Sharply

On September 18, 2013 by TradingDesk

Gasoline prices fell to their lowest level of the year Tuesday, as the entire energy complex sold off sharply following a trio of “good” stories in the Middle East. Libyan oil production is scheduled to rise to 700mb/day by Friday, Iran’s new President reportedly offered to shut one of their nuclear facilities in exchange for a loosening of their oil embargo, and military action in Syria looked less likely. Technical support levels broke down for both RBOB and ULSD futures mid-morning, while WTI and Brent managed to salvage some of their day. With products plunging and crude limiting its losses, refiners have taken a hit to their margins over the past week as the chart below shows. Although each refinery is unique, it appears that many are now below the break-even rate whether they are supplied via land-locked (WTI) or waterborne (LLS) crude. With high RVP season now upon us, there is little hope for a rebound, particularly in gasoline margins, and we are likely to see economic-based run cuts in the near future.

The FOMC announcement today continues to capture the bulk of financial headlines. While energy prices were attached at the hip with equities for the first 4 years of FED liquidity injections (2009-2012) they have decoupled in 2013, leaving the impact on refined products less clear. What is becoming clear is that whatever happens today, with both technical and fundamental factors looking weak, it may take a substantial change to keep energy prices from falling further.

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