WTI Crude Leading the Energy Complex Lower

On March 12, 2014 by TradingDesk
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WTI Crude is leading the energy complex lower this morning, trading as low as $98.30, after breaking below $100/barrel (and its 200 day Moving Average) for the first time in a month yesterday. The accelerated selling after that technical support broke down suggests that we are witnessing some liquidation in the record net-long speculative position that was held in WTI futures and options last week. What remains to be seen is if selling will beget selling as margin calls are made later this morning. For now, refined products are holding up relatively well, losing only half of what WTI has given up on a percentage basis, and holding above technical support levels in the low $2.90s.

Brent crude is also showing relative strength (adding nearly $4/barrel to its premium over WTI this week) as the Libyan oil drama reaches new levels of insanity. Yesterday, the country’s prime minister was voted out of office after a foreign flagged crude tanker loaded at a rebel-held port and out-ran the country’s navy on its way out to sea. Although the reliability of news in the region leaves much to be desired, there is no mistaking the importance of the country’s crude exports that have kept 1 million barrels/day out of global markets since protests began last summer.

Meanwhile, uncertainty about China’s economy following a bond default continues to roil global equity markets, and threatens to push energy prices lower as the country remains the driving force in global demand growth for crude. So far, the impact has been seen more in copper markets, but energy traders will keep a close eye on the situation as bearish influences seem to be mounting this week.

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Action In Energy Futures Stalls Out

On March 11, 2014 by TradingDesk
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The action in energy futures has stalled out, after prices failed again to break chart support amid a mixed bag of headlines Monday. Depending on which side you believe, there may or may not be a tanker full of crude oil leaving a Libyan rebel-held port heading for North Korea this morning, which may or may not have been fired on by the Libyan Navy. If only someone had a camcorder we might be able to settle the dispute.

Technical studies continue to give conflicting signals as the winter premium is erased from Nat Gas, ULSD and WTI, while Brent and RBOB hold above support and threaten another move higher. The $2.90s have now set the boundaries for future price action, and we will just have to wait and see if RBOB and ULSD will break back above $3 and salvage a spring rally, or drop into the $2.80s and make another major push lower.

WTI meanwhile appears ready to test $100, which will create an interesting situation for the record amount of speculative money betting on higher prices. If that psychologically important level breaks down, the rush for the exits could cause a wave of selling across all contracts over the next few weeks.

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Crude Oil and Refined Product Prices Dropping

On March 10, 2014 by TradingDesk
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Crude oil and refined product prices are dropping this morning, despite an 11% increase in Chinese crude imports reported last month, and apparently in spite of the Libyan navy firing on a ship loading crude from a rebel-held port. Although Friday witnessed some late buying to salvage a weak week of trading, today’s action suggests that the mood for energy markets has turned decidedly bearish since the beginning of March, and prices are once again on the cusp of a major breakdown.

The $2.90-$2.95 range has several technical support points for RBOB and ULSD, which are being tested this morning, and will be the difference between a week of sideways trading, and a sharp selloff. ULSD did manage to break $3 during Friday’s run-up, but stalled out at the 100 day MA and has since dropped back near the lows for the month. RBOB meanwhile is threatening to fill the gap left in its chart by the switch to summer RVP, which would put a major dent in any chances for a true spring rally, after charts were targeting $3.25 just a couple weeks ago.

Despite the weakness on charts, the escalating tensions in Libya cannot be ignored. Just in the past few minutes, the government has announced a new military force intended to end all protests at seized oil ports. If this action turns violent, we could see increased volatility in prices this week. If, however, the government succeeds in reopening these ports, we could be looking at sub $100 crude in the near future as nearly 1 million barrels/day of production comes back on line.

Non-Commercial “Speculative” long positions in WTI crude rose to yet-another record high as of last Tuesday, according to the CFTC’s latest Commitments of Traders report. Investors also added to long positions in Brent and RBOB, but cut back their bets on higher ULSD prices during the week.

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Energy Prices Pull Back From Major Sell-Off

On March 7, 2014 by TradingDesk
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Energy prices pulled back from the brink of a major sell-off Thursday, reversing sharp early morning losses in the afternoon, and moving sideways overnight. After 3 dramatic days of trading following the drama in Ukraine, it appears – so far anyway – that markets are prepared to limp into the weekend.

The technical outlook continues to show vulnerability in crude and refined products, as the trend-lines that have supported higher prices to 2014 are breaking down. With speculative funds holding record high levels of bets on higher crude prices, many analysts are suggesting that this week’s selling could spark a wave of liquidation that brings WTI values back below $100.

RBOB and ULSD values remain below $3, and the longer they stay below that pivotal level, the more likely it becomes that we’ve already seen the high prices for the spring, in what would be an abbreviated version of the traditional seasonal rally in prices. The transition to low RVP gasoline does leave many regions vulnerable to price spikes however – as we’ve seen this week in the Midwest – as refiners have to re-tool their plants to meet the more stringent spec.

This morning’s Jobs report has been a non-issue for energy and equity prices so far.

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http://www.bls.gov/news.release/empsit.nr0.htm

THE EMPLOYMENT SITUATION — FEBRUARY 2014

Total nonfarm payroll employment increased by 175,000 in February, and the unemployment rate was little changed at 6.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services and in wholesale trade but declined in information.

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Energy Futures Continued Their Collapse

On March 6, 2014 by TradingDesk
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Energy futures continued their collapse overnight, after the parliament in Ukraine’s Crimea region voted to peacefully join Russia, further reducing the threat of violence in the region. While a $2 billion payment owed to Russia from Ukraine comes due tomorrow, and will keep traders on edge today, refined products have already dropped 13 cents since Monday, and more sell signals are flashing. Technical support has broken down in all 4 of the major petroleum contracts, and Brent/WTI and ULSD are all now appearing ready to test the year’s lows, just a week after setting their respective highs.

The DOE report showed another week of lackluster demand for refined products in the US, and an influx of diesel imports has begun to heal the shortage of diesel supplies along the East Coast. Gulf Coast refiners cut runs by 7% during the week, as the region begins a period of heavy maintenance ahead of the transition to summer-grade gasoline. Crude stocks in Cushing OK, the hub for the Nymex WTI contract, dropped for a 5th straight week as the southern leg of the Keystone XL pipeline continues to ramp up operations, and alternate delivery means ease the glut of supply that has been a driving force in energy prices over the past few years.

The discussion over US exports of energy products continues to ramp up, with the US Energy Secretary telling industry leaders that they need to make a better case to overturn a 35 year old law prohibiting domestic crude from being shipped overseas. The secretary also challenged the industry to prove the advantages of sending crude overseas instead of refining products domestically before shipping, as is allowed today. The push to send natural gas products overseas is becoming more popular politically in light of the European dependence on Russian exports via Ukraine, which means this issue is likely to stay in the headlines for some time.

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Market Update (3)

Technical outlook: Brent crude futures have broken trend support, and the 200 day MA, threatening a test of the year’s lows at $105/barrel.

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DOE Weekly Report

On March 5, 2014 by TradingDesk
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DOE Weekly Report

Energy Prices Give Back All Of Their Crisis Gains

On March 5, 2014 by TradingDesk
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Global equity and commodity markets breathed a sigh of relief Tuesday as Russia took a step back from war in the Ukraine. While tensions remain high, and Russian troops remain in control of parts of the country, the S&P 500 pushed to another record high, and energy prices gave back all of their crisis gains.

Brent crude is now leading the energy complex lower, the first of the 4 major contracts to break its bullish 2014 trend-line and testing support at the 200 day MA. While WTI is still holding above its trend – causing the gap between the two grades of crude to shrink further – the price action in Brent to end the week may dictate direction for refined products. ULSD is currently testing a cluster of support between 100 and 200 day moving averages between $3 and $3.01. RBOB is also testing its bull trend-line, that led the April contract from $2.78 in early February all the way to $3.05 Monday morning. If this line breaks down, a counter-seasonal move back into the $2.80s looks possible.

Today’s DOE report will be watched closely to see if the rumored armada of boats carrying diesel imports to the US East coast to help relieve the desperate supply situation in Padd 1 materialized last week. US refiners are also entering a busy maintenance period, so total crude runs will be a key number to keep an eye on over the next few weeks.

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Wild Trading Action to Begin March

On March 4, 2014 by TradingDesk
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Energy prices are pulling back, and global equities are soaring, this morning as Russia is sending signals of a softening stance in the Ukraine. Refined products and Brent crude are already trading below yesterday’s low values, while WTI is showing some relative strength, reducing its discount to Brent below $6/barrel for the first time in 6 months.

The wild action to begin March, in addition to the record setting inter-month spreads for both RBOB and ULSD futures leaves the technical picture muddled, and providing little direction going forward. RBOB futures are now back below $3, and risk dropping another 10-15 cents should they be unable to break above that level this week. All ULSD values beyond May are also trading below $3, and puts diesel values at risk for another slide down the backwardation curve towards $2.90.

It seems too soon to call an end to the price volatility sparked by violence in the Ukraine however, because if Russia’s president proved anything last year during the stand-off over Syrian chemical weapons, it’s that he plays political issues like a game of chess, and it may take some time for the strategy to unfold.

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Escalating Violence in Ukraine Pushes Energy Prices Up

On March 3, 2014 by TradingDesk
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Escalating violence in Ukraine – some might call it war – over the weekend has pushed energy prices up more than 2% this morning, while global stock markets are selling off heavily. Some will argue that the rise in oil prices, similar to the rise seen in gold today, is a “flight to safety” move by investors already weary of stagnating economies in the region, while others suggest that this is about the threat to oil and gas deliveries from Russia, the world’s largest exporter of energy products. Nearly ¼ of Europe’s natural gas flows from Russia via the Ukraine, so some demand increase for alternate heating supplies may become necessary, but history suggests that this type of price spike is typically short lived. That said, there is certainly a chance that it could get much worse – think WTI in the $120/barrel range in the near term – if the situation deteriorates.

Investors continued to pour money into the long side of the energy ledger, as of last Tuesday when the latest CFTC data was compiled. WTI set another all-time high for non-commercial bets on higher prices, while Brent is near a seasonal record. While the data is compiled too slowly to make any day to day trading decisions, it will bear watching this week to see if these funds take profits on the spike in prices, or if they continue to let it ride.

It should be noted that the summer-grade spec April RBOB contract takes over the prompt trading position today, which added another 20 cents to gasoline prices before the 7 cent overnight increase. Cash markets across the country will take a few weeks to transition to the tighter specs, so regional price dislocations are to be expected.

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Energy Futures Slipping into the Red

On February 28, 2014 by TradingDesk
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Energy futures are slipping into the red again today, following the S&P 500 (which settled at a record high yesterday) lower after US GDP for the 4th quarter was revised nearly 1/3 lower from earlier estimates. Fittingly, both RBOB and ULSD have now given up a third of their February gains over the past week, and have transitioned from decidedly bullish a week ago to neutral/bearish territory today.

The expiring March futures contract will create major changes however, as April RBOB will open trade Monday 20 cents above prompt levels (due to RVP requirements) while April ULSD stands 8 cents below prompt values, due to the lingering effects of the supply squeeze along the East Coast. These transitions cause distortions in continuation charts and will leave both contracts in limbo to begin the month of March. Support at $3 has broken down for both products in all remaining trading months, and if we are able to settle below that level today, slight favor will be given to the bears.

Political turmoil continues to threaten market activity, as violence in the Ukraine escalates and protests in Venezuela continue. Likewise, regulatory turmoil remains as the FED extended its comment period yesterday to gather input on how it should (or should not) allow major banks to participate in commodity markets. These unknowns are likely to influence prices for months to come.

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