WTI Rally Sparked

On February 5, 2014 by TradingDesk
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News that the US had granted re-export permits to send $5 billion worth of imported crude (presumably from Canada or Mexico) to Europe last year, helped spark a rally in WTI yesterday, as well as stir the debate over the future of domestic crude oil regulations. The fact that it was economical for companies to ship crude into the US, then put it on a boat and send it to Italy economically shows just how significant the spread between grades of crude oil has become, and what a dramatic impact it can have on local refineries. Overnight, the spread between Brent and WTI dropped below $8, just half its value of 3 weeks ago, as Brent crude seems to be falling victim to weak European equity markets.

RBOB and ULSD futures are continuing their volatile 2014 pattern, while ultimately going nowhere. RBOB continues to hold just above $2.60, temping another 10 cent drop, although we are in the seasonal window of time that has historically witnessed the beginning of a spring gasoline rally. ULSD continues to be a story of heating demand and low supplies in PADD 1 which is causing more extreme swings in prompt month spreads. There is some good news for consumers however, as forward value for diesel are now trading 25-30 cents below year-ago values, giving many an opportunity to lock in fuel prices at an advantageous level.

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Another Significant Move to the Downside

On February 4, 2014 by TradingDesk
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RBOB Gasoline and Brent Crude oil futures are on the cusp of another significant move to the downside this morning, and a rolling sell-off across global equity markets – currently rippling through Asia and Europe – is adding to the negative sentiment. $2.60 will be a critical support level for March RBOB, although volatility is likely as the month progresses as traders try to manage a balance between the different RVP specs in the March and April contracts, which are currently trading at a 19 cent spread.

WTI crude is holding small gains at the moment – with news that the US granted more than 100 permits to export limited quantities of domestic crude to Canada and Europe in 2013, and hopes that the Keystone pipeline approval will finally make it through the Washington gauntlet earning credit for the strength. The move has caused Brent’s premium to WTI to fall below $10 for the first time in 4 months, and is eroding refining margins across the US.

ULSD continues to show relative strength as the east coast struggles to catch up on supplies following the string of winter storms, the latest of which briefly shut boat traffic in the New York Harbor yesterday, which helped futures erase an early morning sell-off. The forward curve for distillates continues to favor lower prices, as most forward contracts are now trading below the technical support range around $2.80. The March HO contract is facing a near term pivot point at $3, which should determine our direction for the balance of the week.

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Uncertainty Hanging Over Equities and Energy

On February 3, 2014 by TradingDesk
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A general sense of uncertainty seems to be hanging over financial markets as trading begins for the 2nd month of the year. Global equities are facing further losses, after a tumultuous January, with concerns over emerging market currencies and (a lack of) Chinese economic growth grabbing most of the headlines. Energy markets are stuck debating whether or not the US will finally approve the northern leg of the Keystone XL pipeline, after a report from the US state department used a lot of words to say very little, and left the white house with few reasons not to let the project move forward. That said, it appears that a lengthy “public comment” period will now follow, and any actual progress remains months away.

ULSD futures are starting out 23 cents below where they left off Friday, after a wild day for the expiring February contract saw 15 cents gains at 1pm, only to drop by 14 cents in the last 30 minutes of its existence. The volatility in inter-month spreads has left a mess of the charts, and a neutral outlook near term. Investors did pour money into ULSD (and crude) futures last week, trimming the net short position of the non-commercial trading group. RBOB meanwhile looks like it has more room to fall, even though we are officially entering the window for a spring rally in gasoline prices. Investors reduced their bets on higher prices last week, but need to be watched closely going forward, as the seasonal long gasoline is typically a very popular (and crowded) trade. If the typical spring rally is to take place in 2014, the managed money class of traders is likely to jump on board early and often.

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Market Update

HO non comHO managedRBOB non comRBOB non comWTI non comWTI managedbrent managed

 

Equity Sell-Off Putting Downward Pressure On Energy Prices

On January 31, 2014 by TradingDesk
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Asian/European and US equity markets are selling off sharply this morning, putting downward pressure on energy prices. Emerging markets and European deflation concerns are grabbing most of the headlines, and sharp rises in gold and US Treasury prices suggest that today’s action may be driven by a general “risk off” sentiment.

Dislocated diesel prices continue to be the major story in US energy markets this week. Prompt ULSD futures are testing the highs from 2013, but when the February contract expires today, we’ll begin trading a remarkable 19 cents lower for the March contract. RBOB gasoline prices were given a boost by news that the P66 Bayway NJ Plant suffered an upset yesterday, but those gains have already been given back overnight as prices slog through a neutral technical outlook.

As we put the first month of the year in the books, it appears that a return to volatility (after the relative quiet of 2013) may be in the cards this year.

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Market Update

 

Extreme Cold Impacts Diesel Supplies

On January 30, 2014 by TradingDesk
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Yesterday’s DOE report gave a good look at the significant impact the extreme cold has been having on the country’s diesel supplies. PADD 1 (East Coast) stocks dropped by more than 11% last week, to their lowest levels in 6 years, as demand for heat outpaced traditional generation methods and ULSD found itself becoming the supplemental source of supply. Nationwide demand for distillates has increase by 50% over the past 3 weeks, the largest such spike in more than 13 years. All this information validates the price action we’ve witnessed over the past two weeks, particularly the record backwardation in ULSD spreads. Most notably, the Feb/March spread is now north of 17 cents, compared to two weeks ago when the all-time high was a 6 cent premium for the prompt contract.

The good news for US consumers is that the lack of reaction by forward prices suggests a US refined products market that remains structurally long, so when these types of events occur their impact – though dramatic – is fairly short term. As is shown in the production and net import/(Export) figures below, the US still produces over 1 million barrels/day of refined products that it does not consume, and simply backing off of exports can help to heal a supply wound more quickly than racing to find new refining capacity. The current situation does an excellent job of displaying the challenges faces by the industry trying to move ample supplies from the refining center along the gulf coast to the population center along the east coast.

As was widely expected, the FOMC reduced its monthly asset purchases to $65 billion per month yesterday, and US equities continued their January slide following the announcement. The monthly chart for the S&P 500 shows an outside down reversal bar forming for January, which – should we settle the month at current levels – suggests more selling in equities to come. The correlation between equity and energy prices has dropped significantly over the past year, but as energy prices struggle to find direction, this could be a significant factor as we head into the spring.

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Market Update (3)

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DOE Weekly Report

On January 29, 2014 by TradingDesk
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DOE Weekly Report

Winter Weather Continues to Dominate Headlines

On January 29, 2014 by TradingDesk
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Winter weather continues to dominate the headlines, and wreak havoc on energy markets across the US. To get a feel for how widespread the impact has been, overnight Philadelphia Energy Solutions reported a shutdown of 3 units at its Philadelphia refinery, Citgo reported issues due severe weather at its Lemont IL plant, and Motiva reported that it would delay maintenance at its Norco LA facility due to frigid weather. This is in addition to reports that PBF continues to struggle to bring its Paulsboro NJ plant back online after the cold knocked several units offline last week. Meanwhile, the spike in demand for heating fuels continues, holding Natural Gas prices at a 4-year high, and helping ULSD maintain its record spread between prompt and forward month prices.

Meanwhile, a financial storms appears to be brewing in emerging market economies, with a surprise interest rate hike by the Turkish central bank action sending shock waves across European markets. US equities are poised to open lower, wiping out yesterday’s recovery rally, which has helped cap another overnight rally attempt in RBOB and ULSD futures. The FOMC is expected to announce another $10 billion reduction in its monetary stimulus today (reducing their monthly purchases to “only” $65 billion) in Ben Bernanke’s last meeting as Chairman of the FED.

WTI is dropping today, with several analysts suggesting this is due to the Keystone XL pipeline – long hoped to be a major piece to the solution for relieving the glut of Western Canadian and Bakken crude – not being mentioned during the State of the Union address. After 5 years of delays in a ruling on allowing the pipeline to cross the US/Canadian border, it seems that a decision is not likely any time soon.

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Another Dramatic Day for Diesel Prices

On January 28, 2014 by TradingDesk
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Monday was another dramatic day for diesel prices, with prompt month ULSD futures hitting a 6 month high at $3.18 in the morning, only to crumble during afternoon trade, wiping out more than a dime in value and ending the day just above $3.08. Although forward ULSD contracts have not reacted as sharply to the record-setting cold snap wreaking havoc on supplies of various heating fuels across the US, they also showed sharp reversals on the day with 5-7 cent drops throughout the session.

While diesel values have been grabbing the headlines, RBOB gasoline futures stalled out at their 100 day moving average for the 4th trading session in a row, and ended the day with heavy selling. Both the February and March contracts are now standing just a few cents away from the pivotal $2.60 level. If that support breaks, we should see another 10 cent drop in gasoline prices near term.

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Energy Markets in a State of Confusion

On January 27, 2014 by TradingDesk
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Energy markets remain in a state of confusion this morning, as the two sides of the barrel struggle for control of the action. The effects of the latest cold snap continue to be felt far and wide, as Natural Gas prices broke $5 on Friday for the first time since 2010, and prompt diesel values now trade 15 cents above 1 month forward values as suppliers race to keep up with heating demand.

Although the moves have been extreme, and have demonstrated the vulnerabilities of the US system so reliant on producing energy on the Gulf Coast and transporting it to the East Coast and Midwest, forward curves are still suggesting the effects will be short lived and lower prices are coming. With only 5 trading days left on February RBOB and ULSD contracts and US equities suddenly appearing vulnerable after a week of harsh selling, the potential for another slide in prices is growing.

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Market Update (3)

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Commitments of Traders Charts:

 http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm

 

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Cold Weather Continues to Wreak Havoc On Energy Markets

On January 24, 2014 by TradingDesk
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Cold weather across the US continues to wreak havoc on energy markets, as more refineries have experienced operational issues and demand has spiked for any fuel that is able to generate heat. States of emergency have been declared in many states as natural gas, propane and diesel shortages become widespread and trucks are having to travel beyond state lines to find new sources of supply. Yesterday’s DOE report demonstrated the regional nature of these disruptions as refinery runs in Padd 1 & 2 dropped sharply along with diesel stocks. The challenge over the next few weeks will be a more urgent version of the same theme that has dominated physical energy supplies in the US over the past 2 years: How do we get the ample supplies from the US Gulf Coast to the population centers on the East Coast.

While these weather-related issues are certainly extreme and causing much heartache at the moment, the price reaction so far suggests that the disruptions will not last much longer. ULSD Futures prove this point with February futures adding 1%, while contracts in April and beyond were all lower for the day. RBOB meanwhile is dropping again as the same factors that have caused a spike in diesel demand and causing gasoline demand to stay at multi-year lows.

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Market Update (3)

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