Most Major Petroleum Futures Contracts Dragged to Lowest Levels of the Year

On April 2, 2014 by TradingDesk

Refined product prices have dropped a dime so far this week, as a combination of bearish technical and fundamental influences combined to drag most of the major petroleum futures contracts to their lowest levels of the year.

A Libyan rebel group has reportedly agreed to terms with the government to resume operations in several of the locations shut for nearly a year due to protests, which has the potential of returning nearly a million barrels/day of crude to the global market. Skeptics warn that these stories have been floated continuously for months, with little to show in the way of progress. Several stories have also emerged that suggest it’s unlikely that the tensions in Ukraine will have any impact on oil products, which appears to be helping push Brent crude to its lows of the years on both an outright basis, and in relation to WTI.

Once technical support around $2.90 broke down for RBOB and ULSD, the follow-through was swift, and both products are now facing their next round of tests in the mid to low $2.80s. If these levels fail to hold, both contracts look to target $2.70, and close the book on the 2014 spring rally. Although WTI crude futures are holding just below $100/barrel, cash prices around the US are dropping, as physical supplies ease outside of the Cushing OK hub, and new bottlenecks for supply emerge. Conversely, not all regions will see relief from lofty prices due to the latest move in futures. Yesterday was the first trading day for summer-spec conventional gasoline in the gulf coast, so some markets will actually see cash increases this week as terminals convert to a lower RVP product.

With such heavy selling to begin the week, the price action over the next few days becomes critical. If a short-covering bounce stalls the move, we could see a new period of consolidation. If however the net long speculative positions (which have remained near record highs for weeks) are forced to bail out, the selling could become extreme.

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