Fall Rally is Over

On October 18, 2012 by TradingDesk

Decelerating Chinese GDP and a decreased forecast for Brent prices from Goldman Sachs are pushing energy futures lower, the first time this week that the major contracts have been in agreement on direction.

RBOB is leading the way lower again, breaking through its October lows, reflecting both a major unwind in time spreads (The Nov/Dec spread is down 16 cents in the past 2 weeks) and plunging cash markets across the country. Technically, RBOB has moved into bearish territory with the next major piece of support sitting 20 cents below current levels.

Meanwhile, diesel prices are showing relative strength, although charts are slowly signaling a top may be in for HO. The DOE report yesterday showed that diesel stocks across the US remain tight, particularly in PADD 1, proving that the export market is more than able to handle the excess production of US refiners. Seasonally, we should see HO peak somewhere around October, and if today’s selling picks up, it may just be that last Friday’s trade at $3.2650 was it. Although it’s been less dramatic than gasoline, cash markets for diesel have also been slipping this week, as traders try to grab a premium for prompt barrels along a steeply backwardated curve, adding strength to the argument that our fall rally is over.

CLICK HERE for a PDF of today’s chart

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