Energy Prices Step Lower

Energy prices took another step lower Thursday on the heels of a tumbling Brent crude contract and US Stocks. Brent has dropped to its lowest levels of the year this week as production in the north sea has outpaced estimates, Sudan has returned to its role as a crude exporter, and as the latest Eurodrama plays out in Cyprus. US Stocks have seemed to largely shrugged off the news across the pond, but a single line in the FED’s statement from Wednesday has sparked debate that Ben Bernanke has begun compromising with the more hawkish members of the FOMC, which pushed stocks lower.

April HO was the only energy contract to finish in the Green Thursday as liquidity for the soon-to-be defunct delivery specification dries up. With only 5 trading sessions until the ULSD spec takes over, watch the forward months of HO to get the real feel for what diesel prices are doing. Those contracts have fallen below $3, and continue to point to lower prices ahead. RBOB meanwhile has continued its manic behavior, but is near the lower end of its range. Charts for the gasoline contract are stuck in neutral, with a break below $3 or above $3.25 needed for further direction.

This single sentence is causing a great deal of heartburn for holders of US stocks.

http://www.federalreserve.gov/newsevents/press/monetary/20130320a.htm

In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

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Markets Trading Quietly

Yesterday’s DOE report showed continuing weakness in the US supply & demand equation, as refinery runs picked up as plants come out of a busy maintenance period. The report wiped out early-morning gains in both RBOB and HO, and for a while it appeared that the week’s sell-off might pick up steam. Prices rebounded in the afternoon however, and the FED’s statement caused a surge in stock indices and energy values, with RBOB outperforming and nearly erasing Tuesday’s 8 cent losses. Markets are trading quietly this morning, appearing to wait and see who will win a tug of war between shrinking European markets (No, they haven’t figured out what to do with Cyprus yet) and US markets which are once again approaching record highs.

Energy futures are back in limbo, RBOB will need to break back above its trend-line at $3.1350 if a true spring rally is to take place. HO needs to get the April contract above $2.90 and the ULSD-Spec May contract back over $3 to prevent further selling. Charts are mixed, with slight favor given to more selling.

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DOE Weekly Report March 20, 2013

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A Wave Of Selling On Energy

Refined products finally broke the support that had propped up prices this month, and a wave of selling soon followed. A late afternoon rally in stocks helped limit the damage, but when the dust settled RBOB was down more than 8 cents, and HO more than 6, their lowest levels since January. Stocks are heading higher this morning, on hopes that the FED’s statement due out at 1pm central today will soften the recent hawkish tone which has many worried that the QE party may end early.

The drama in Europe continues to play out, and the EUR/USD is trading at its lowest level of the year, as it becomes increasingly obvious the leaders there are simply making things up as they go. The currency weakness is weighing heavily on Brent crude prices, which also fell to its lows for the year. The tendency for US Products to follow the Brent crude contract helped strengthen prices for much of the past year, but is now having the opposite effect. If Brent breaks below $107, expect both RBOB and HO to follow with more large losses.

April RBOB – The trend line finally broke, pushing prices nearly 10 cents lower.

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Energy and Equitites Reject Selloff Attempt

Energy and stock markets held up remarkably well Monday, rejecting an attempt to sell off heavily in the morning, and gaining ground for most of the afternoon. The debate over the Cypress situation continues to dominate headlines this morning, and has sparked another round of selling in refined products. Both HO and RB are right back where they were yesterday, attempting to break through support at $2.90 and $3.10 respectively. Charts are still mixed, but give slight favor to lower prices in the near term. If these support levels break, both products appear to have around 20 cents to fall before the next layer of support is found. If they hold, expect a 10 cent rise to test their Feb/March resistance levels.

The FOMC begins a two day meeting today, and is expected to leave all current programs in place and unchanged, and QE-Cyprus appears unlikely at this time. Physical markets have been quiet this week with many participants in Houston for the convention formerly known as NPRA, and are expected to go completely silent later this week as all attention turns to the NCAA tournament.

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Energy Futures Moving Lower But Technical Support Levels Holding So Far

A little European island nation with a smaller economy than Shreveport LA has shaken global markets after news broke late Friday that bank depositors may be forced to fund a bailout of the nation’s banks using their own savings. While the immediate financial impact of this event should be fairly minor, the idea of having savings accounts seized to finance government shortfalls is frightening investors around the world.

Energy futures are moving lower along with stock markets, but technical support levels have held so far. RBOB still has a major pivot point around the $3.10 range, and HO at $2.90. The charts below show the “non-commercial” positions in the largest futures markets. The red line shows that speculative money has been flowing out of the markets for the past few weeks. What will be interesting to see is how these funds react to the Cyprus news, as a continued “flight to safety” and away from risky assets such as energy commodities may be enough to finally push prices through support and into a major correction.

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Refined Products Off To A Morning Rally

Refined products resisted another attempt to sell off Thursday, bouncing off of the same support levels that staunched the selling Wednesday, and are now rallying again on the heels of Brent crude –back above $110/barrel – and the EUR/USD, which is back above 1.30. The uptrend in gasoline prices is intact, setting up a key test of resistance in the mid $3.20s over the coming weeks, which will decide if the spring rally of 2013 ends early, or threatens all-time highs for the contract.

HO and WTI prices remain stuck in consolidation patterns, with no clear direction. HO has hit the $2.90 mark 3 times so far in March and bounced each time. Charts suggest that this pattern is one of continuation, which means HO should leave the pattern in the same direction it entered (moving lower) and that $2.70 is the next target.

Euphoria is reigning in US stocks as the DJIA increased for the 10th straight session yesterday (it’s been over 20 years since it gained for 11 straight trading days) and the S&P 500 is just 2 points away from its highest close ever and 13 points from its highest trade. In a note of caution, the highest trade in the S&P 500 happened on 10/11/2007, the index hit 1576.09, only to drop below the prior sessions lows to end the day – the ultimate example of an outside down reversal – kicking off a disastrous period of trading in which the index fell by 57% over the next 18 months.

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Diesel Drops While RBOB Pricing Has An Identity Crisis

Yesterday’s DOE report showed a 13% drop in the government’s estimate for US Diesel demand for the week, and while those estimates are notoriously unreliable on a short term basis, it was enough to push diesel prices to their lowest level in 2 weeks. So far, support at the $2.90 level (which kept prices from plummeting in February and December) is holding, but charts remain weak and suggest a 20 cent drop is coming if we can break below that level.

RBOB had another identity crisis, nearly mirroring Tuesday’s manic action, rising 3.5 cents early, dropping 9 cents over the next few hours, only to bounce off of its trend line again and finished the day nearly unchanged. The discussion over the impact of the renewable fuel standard continues to dominate market chatter as more evidence piles up that RIN values 20 times higher than they were a year ago are not only holding out the typical flotilla of European cargoes heading for New York this time of year, but are forcing more exports of US Gasoline from the gulf coast. Expect what is already a sensitive political issue to really heat up once the media figures out that the RFS is effectively paying US refiners to send domestically produced gasoline to Brazil, and reimporting their sugar-cane based ethanol.

Meanwhile, US equities continue their steady march higher, with the DJIA rising for 9 straight sessions, and the S&P 500 just 11 points from a record high, but momentum has completely stalled. Although correlations have broken down between equity and commodity markets, if stocks do finally have a pull back, it may add to the bearish sentiment and tip crude and diesel prices lower.

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This Week’s US DOE Weekly Inventory Recap

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A Quiet Overnight Session For Energy After Yesterday’s Wild Ride

It’s been a quiet overnight session for energy markets, after another wild day Tuesday, and despite Asian/European and US equities all pointing lower on the day. A surprising drop in US Crude stocks was helped lift WTI crude modestly, while Brent crude continues to struggle following another reduction in the 2013 forecast for global demand by the IEA.

RBOB continued its manic behavior yesterday, dropping by over a nickel at 10am after the bubble in ethanol RINs appeared to have burst, with 2013 values dropping from $1.05 to $.65 per E6 RIN, but once again technical support held and RBOB values rallied almost 9 cents over the next hour, and RIN Values rebounded by 25 cents. As if to admit that the market is thoroughly confused, after all that excitement the RBOB contract ended up down only $.0020. Despite all the noise, the chart still suggests RBOB has more room to move higher.

Heating oil rallied early in the morning after breaking through the 200 day MA, hit its highest level in 6 trading sessions, only to fall to its lowest level in 7 sessions by the end of the day. The outside down chart pattern suggests more selling to come for HO near term, but so far nothing has materialized. Prompt month values for diesel futures are likely to see a rapid drop in liquidity over the next few weeks as focus will turn to the new ULSD spec HO contract that becomes prompt April 1.

April RBOB, trend line is intact.

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