Refined Product Futures Selling Off Modestly

On February 27, 2014 by TradingDesk
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Refined product futures are selling off modestly this morning, following the lead of Brent crude and global stock markets that are reacting negatively to escalating violence in the Ukraine, and a subsequent drop in the Euro.

WTI is holding flat at the moment, reducing its discount to Brent crude to the lowest level in 6 months, as domestic markets continue to see-saw over the Keystone pipeline debate and new “emergency” regulations on rail shipments that threaten jail time for shippers who fail to classify crude cargoes correctly.

The selling in energy futures so far this week, while modest relative to the preceding run-up in prices, has changed the technical outlook as we look towards March trading. RBOB has more sell signals appearing, while ULSD is shifting to a neutral mode after weeks of strong bullish signals.

The DOE report showed little change in the country’s energy stockpiles, as the pattern of sluggish demand (near 5 year lows for both gasoline and diesel) compared to high refinery production was once again balanced out by exports of refined products. As we head into spring, a major question will whether rising tensions in country’s from South America to Asia will have more of a negative impact on supplies, or demand.

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Market Update (3)

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DOE Weekly Report

On February 26, 2014 by TradingDesk
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DOE Weekly Report

Ripple Effect of Winter Weather Continues to Dominate Energy Markets

On February 26, 2014 by TradingDesk
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The ripple effects of winter weather continue to dominate the talk and price action in most energy markets, with Nat Gas taking back its forgotten role as the most volatile energy contract after dropping as much as 27% over the past 2 days. With another round of frigid temps striking the Midwest today – and already one Illinois refinery unexpectedly shutting down a crude unit – expect that trend to continue until warmer weather takes hold.

RBOB gasoline futures are completing a short-term rounding top on daily charts, with the next stop a test of the 200 day MA at $2.7740. The contract may be (temporarily?) saved by Friday’s expiration however, as the April contract takes hold. The key pivot point there remains $3, and now that the forward months are all trading below that level, more bearish signals are flashing, contrary to what we’d typically expect as driving season approaches.

The main story in ULSD continues to be volatile time spreads as regional supply shortages remain following the winter-weather induced demand spike, and a constant shuffling of import cargoes keeps traders guessing. Another round of winter weather this week should add to the volatility.

WTI Bounced off of support at $101 yesterday, and is pushing back towards resistance in the $103 range. If that breaks, a move to $110 looks likely, although the sharply backwardated curve – similar to ULSD – suggests that lower prices are coming once near-term supply issues are sorted out.

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Market Update (3)

Ethanol’s discount to RBOB is collapsing in the face of logistical hurdles that are keeping railcars from replenishing stocks around the country.

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ULSD is steeply backwardated as the market struggles to replenish stock piles after the worst winter weather in 20 years.

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WTI remains backwardated as supplies race to keep up with new pipeline capacity and high refiner demand.

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Long Term up trend in ULSD remains intact.

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Energy Futures Consolidating This Week

On February 25, 2014 by TradingDesk
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Energy futures are consolidating this week, pausing the February rally as markets from Natural Gas to ULSD to Ethanol all struggle to dig out from logistical problems brought on by winter weather. Pricing dislocations in terms of both time and location remain widespread across the US, as traders try to balance extremely tight prompt supplies in many markets, compared with ample output that should heal the situation as spring takes hold.

We don’t discuss Natural Gas futures too often, but after breaking a 4 year high at $6.49 yesterday, only to drop 22% to trade at $5.05 today, they certainly bear mentioning, particularly since the struggles witnessed in terms of supply shortages have echoed throughout the ULSD market for the past 2 months. Likewise, prompt Ethanol in NY Harbor, crippled by rail cars being unable to move efficiently from the Midwest due to the snow and cold, has traded near the $3 mark, nearly 1/3 higher than prices at the end of 2013.

In relative terms, ULSD prices have been somewhat quiet, although record spreads between prompt and forward months, and extreme volatility in those spreads, paints a clear picture of how vulnerable the country’s system of transporting fuel from refineries to people really is.

$3 remains the pivotal mark for April RBOB and ULSD contracts. If support at this level holds, we can expect the spring rally to continue. If that level fails, both contracts look to drop 20 cents as supplies recover and US demand remains stuck in neutral.

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Market Update (3)

Bubble in Prompt-Month ULSD Futures Bursts

On February 24, 2014 by TradingDesk
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The bubble in prompt-month ULSD futures burst on Friday, sending the March contract down by 8 cents on the day, although it was still up 2 cents for the week. Although the selling was impressive, most of the losses were due to a collapse in time-spreads, and the bullish trend in place since the onslaught of winter weather began in January remains in place. The April contract, which will take over the prompt position next week, is still well above the pivotal $3 mark, and will take much of the focus this week. If $3 holds, look for more upside over the next few weeks.

RBOB had a more modest sell-off Friday, and also finished with 2 cent gains for the week. The contract is showing signs of a rounding top on the charts, which could be a bearish signal, but the lower-rvp April contract did settle above $3, which suggests the spring rally is still alive and well.

Investment funds poured into energy futures and options early last week, the largest increase in such positions since 2011 according to the CFTC, with each of the 4 major petroleum contracts showing substantial increases in their net long bias for this class of trader. What is interesting is that the net long position in refined products remains within historical levels, while WTI positions continue to break record highs. This could mean further upside for products, even if crude prices stall out, but it also leaves the entire complex vulnerable to a sell-off should the hot money head for the exits.

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Market Update (3)

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RBOB and ULSD Futures Finish the Day In the Green

On February 21, 2014 by TradingDesk
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Yesterday’s price “correction” for RBOB and ULSD futures lasted only a few hours, with both products erasing early losses and finishing the day well into the green. The DOE report was something of a non-event, as headline values were little changed amid the backdrop of weak demand, high refinery output and exports to balance the equation. Both Brent and WTI crude saw slight losses on the day, but the escalation of violence in Ukraine, Libya, Iraq and Venezuela seems to have put a floor under crude values for now.

Looking forward, the technical outlook remains bullish for all contracts, and continued spring rally looks likely over the next several weeks. That said, warmer weather across the eastern seaboard could go a long way to heal the desperate supply situation for natural gas, propane and diesel, and ULSD values could slide down the steep curve of backwardation. Most of the trading volume will switch to the April futures contract early next week, and $3 will become the key support level for both RBOB and ULSD, with upside potential into the $3.20s should that support hold.

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Market Update (3)

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DOE Weekly Report

On February 20, 2014 by TradingDesk
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DOE Weekly Report

Rally in Energy Prices Stalls

On February 20, 2014 by TradingDesk
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The rally in energy prices has stalled overnight, with each of the 4 major futures contracts dropping in sympathy with weakness in global equity markets. A drop in the February Chinese PMI report is taking much of the blame for the selling, although technical studies suggested that the market was overdue for a correction after 2 solid weeks of gains. Now that some selling is underway, look for short term support levels to determine if this is simply a brief pause in a larger bull rally, or the end of the run. $2.77 will be a key pivot point for RBOB, while ULSD will need to drop back below $3.10 after hitting $3.16 overnight.

The Brent/WTI spread has dropped to its lowest level in 6 months as Brent struggles to break through resistance at $110, and as several industry heavyweights have begun to lobby for a new benchmark for European crude due to the declining output – and relevance – of the North Sea oil fields. Today’s DOE report will be watched closely to determine how the US is holding up in the face of the worst winter in 20 years, with ULSD spreads and Natural Gas prices above $6 both suggesting that the healing process will take some time.

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Market Update (3)

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Most Signals Are Warning of Higher Energy Prices To Come

On February 19, 2014 by TradingDesk
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WTI led yet another rally in energy prices Tuesday, as a combination of technical and fundamental factors helped push several contracts to their highest levels so far in 2014. RBOB gasoline completed its “W” pattern, rallying 25 cents in the past two weeks, and setting the stage for further gains if a traditional spring rally is to take place. ULSD futures also broke through $3.10, and appear near another breakout stage, which could add another 5-10 cents over the next week. Both contracts continue to have signals suggesting they are overbought and due for a correction, but for the time being, most signals are warning of higher prices to come.

Violent protests in Ukraine, Libya and Venezuela, each an important nation for various energy supplies, helped add to the bullish sentiment particularly in Brent and WTI. Natural Gas prices in the US reached a 4-year high, as the country’s infrastructure struggles to keep up with heating demand in a brutal winter – despite record levels of output brought on by the shale gas revolution. While global markets for Nat Gas are dislocated due to the inability to efficiently transport the product overseas – unlike crude oil which is comparatively easy to ship – European markets are weary of their own supply disruptions since much of the continent relies on Russian exports – via the Ukraine – to heat their homes.

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Market Update

 

 

Momentum Continues Into Today’s Trading Session

On February 18, 2014 by TradingDesk
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RBOB and ULSD both broke through technical resistance levels on Friday, and have carried that momentum through the holiday and into today’s trading session. RBOB is now just a penny away from completing its “W” formation at $2.85, while WTI is already through $3.10 and testing $3.12. Both contracts have many bullish technical indicators, suggesting higher prices are coming, but they both are also showing to be over-bought and vulnerable to a short term correction.

As the charts below show, both the “noncommercial” and “managed” classes of trader, often referred to as “speculative” money (as opposed to commercial “hedgers”) poured into WTI and Brent last week, and WTI is now at a record high net-long position for that category of trader. While the extra funds appear to have helped push both contracts to their highest levels so far in 2014, traditional lessons on market theory suggest that when positions reach extreme levels on either side of the ledger, the market is ready to change course. Or, to put it more simply, “when everyone gets on one side of the boat, that’s when it tips over”.

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Market Update (3)

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