Most energy contracts are moving slightly higher this morning, but March RBOB is up more than 2 cents, as the March/April spread recovers from a record low yesterday of nearly -24 cents. RBOB’s bid to break out of its 2-week old trading range yesterday failed following the DOE report which showed that gas stocks dropped by less than 1 million barrels on the week, despite heavy refinery turnarounds. Charts continue to favor higher prices in the near term, but products will have to overcome a slumping Brent crude contract which dropped after the Euro zone reported that its Q4 GDP slipped deeper into recession territory than was expected. US Stocks are set to open lower on the news as well, and the EUR/USD is down more than a penny. With the energy rally already stalled this week, the reaction to this negative news should give us good insight into the future trend. If prices can hold up, expect a return to the rally in the near future.
RBOB futures are leading energy commodities into the green this morning, shrugging off reports that the Come By Chance refinery in Newfoundland would return to full rates this week (a major source of East Coast gasoline imports) and a cut the in the IEA’s forecast for global petroleum demand. The move appears to be purely driven by technical, as the contract has broken out of its two-week old consolidation between $3 and $3.06. If the gains hold, the chart pattern suggests another 30 cents of upside for RBOB. While that may seem extreme, prices will already be 20 cents higher as soon as we roll to the April low rvp contract. With Brent crude also holding above $118, everything on the charts continues to favor higher prices.
Meanwhile, US equities remain only 1 strong day away from record highs, which should help energy prices remain strong. In several ways, the moves in energy and equity prices are similar to what we saw a year ago. The silver lining for consumers is that once the rally did finally end last spring, prices dropped 25% over the next two months.
Energy markets are moving quietly higher this morning after failing another test of support Monday. WTI bounced $2.5/barrel after briefly trading below $95 yesterday morning, and RBOB is up nearly 4 cents since its attempt to break $3.00. The discussion of a change in the delivery requirements for Brent crude has caused a minor correction in the Brent/WTI spread, currently at $21, and pulled RBOB cracks vs. WTI back from record highs. Goldman Sachs released a target of $7 for that spread this year, suggesting that the infrastructure race to relieve the glut of crude from the middle of the US would finally see the finish line after 2 years. Meanwhile the meanwhile the merger between Canadian oil producer Nexen and the Chinese National Offshore Oil Corporation (CNOOC) was approved by US regulators, which should eventually provide alternative outlets for the Canadian crude grades – some of which are trading in the $60 range due to lack of transportation infrastructure.
Meanwhile, equity markets are quiet with many Asian markets taking the day off to celebrate the new year. Charts continue to point to higher prices, although a trading range has developed that may require a catalyst to break out of.
Energy prices stormed higher Friday, buoyed by a breakout in Brent crude, and by concerns that Nemo would disrupt supply in the Northeast. The storm did little, if any, damage to energy infrastructure and so we’re selling off today. In addition, Shell unilaterally changed the rules of BFOE (the delivery grades of Brent) crude cargo deliveries, in an attempt to add liquidity to a market that often faces logistical bottlenecks. Some believe the move could put a lid on Brent prices when it takes effect this summer.
RBOB is leading the complex lower this morning after the Trainer PA refinery announced that it had restarted an FCC unit that had been down for weeks. The contract has tested support at $3, and held yet again. The contract is in a flag pattern and needs to break below $3 or above $3.07 to find any direction. HO meanwhile continues to target its fall highs in the $3.26 range, with little on the charts to slow it down.
The march higher continues this morning, after Chinese trade data surged in January, with both exports and imports increasing by more than 25% from a year ago. What’s conveniently ignored in the data is that due to the timing of the Lunar New Year, there were 5 more working days in January 2013 than in 2012, which accounts for almost all of the move. We are clearly in a bull market in equity and energy prices, and this type of positive reaction should be expected. We’ll know the rally may be ending when “good news” is suddenly not enough to push us higher.
HO has broken through to fresh highs for the year, following Brent crude which stands at 9 month highs. The diesel contract now stands less than a dime from its highest levels since 2008 when it peaked at $4.15. The pivotal resistance level over the next few weeks will be the range between $3.30-$3.33. Meanwhile, only WTI’s inability to break $100 (so far) may hold the complex back from continuing its spring rally. There is much discussion over how the major storm bearing down on the East coast may impact prices. At this point, it does not appear strong enough to impact energy infrastructure and likely poses more of a threat to demand than supply.
Refined product futures pushed to new highs for 2013 overnight, after another attempted selloff failed during yesterday’s session. Both contracts have pulled back in the past hour after the European Central Bank (ECB) left its interest rates and policy unchanged, which caused the EUR/USD to wipe out its overnight gains. With WTI bouncing off of support at $95 again, most of the pieces appear to be in place for another sustained rally in energy prices. Brent crude is just a few pennies away from breaking to a fresh 6-month high, which could prove the catalyst for another rally, while a failure may signal another period of consolidation.
In contrast to the bullish technical picture, yesterday’s DOE report showed that demand continues to be stagnant in the US, with more than 1 million barrels per day of refined product exports needed to continue to balance the supply equation. With a major winter storm bearing down on the east coast, expect demand figures in the next few weeks to remain lackluster.
The Euro Yo Yo is taking another spin to the downside this morning, leading energy and equity prices into the red, although they haven’t yet erased Tuesday’s gains. With the correlation between the EUR/USD, equity and energy prices returning, we’re subject to riding this rollercoaster for a bit longer. Despite today’s early selling, the trend in all of these markets remains bullish for now.
WTI Crude is leading the selloff, down more than 1.5% and testing support at the $95 level, while refined products are relatively stronger, continuing to follow the lead of Brent crude which is only down .5%. The spread between the world’s 2 leading grades of crude oil stands at nearly $21/barrel this morning, its widest in 2 months, as Enterprise struggles to unclog a bottleneck along its reversed Seaway pipeline which allows the distressed north American barrels to reach the market. One the other hand, Magellan just announced yesterday that startup has begun on its reversed Longhorn pipeline which now will bring crude from west Texas to the Houston market, after years of taking refined products in the opposite direction. This is one more example of how the struggle to bring landlocked crude to the coasts will create logistical issues for refined product markets, as refiners clearly worry more about what they feed their dog, than how they dispose of its waste.
If WTI does break and hold below $95 today, expect a quick test at $93 which should set up a drop in RBOB to the $2.90-2.95 range, and to $3.10 for HO. A bullish flag formation may be created if RBOB holds support at $3 and breaks out above $3.05, which would ultimately target the $3.40 level, right in line with a typical spring rally in gasoline.
After a strong day of “risk off” selling across most global equity and commodity markets Monday, it appears that we have returned to the rally this morning. European stocks are leading the way, after some of the political concerns raised yesterday were allayed by Prime Minister Mariano Rajoy’s claims that the reports of an alleged slush fund of public dollars being held by his party were “untrue – except for some things.” While that may not entirely explain the 1.5% rally in European stocks today, it does point out what a complex situation is being faced in the region. US stock futures are following the EUR/USD higher, taking back roughly half of yesterday’s losses overnight.
RBOB is leading the energy complex higher, boosted by reports that the Come by Chance refinery in Newfoundland was shut due to a power outage. The plant is a major exporter of gasoline to the US East coast, and while reports of a restart have slowed the gains in the past hour, this is another clear example of how sensitive the Nymex delivery hub is to any perceived supply disruptions. The Nymex futures contracts failed to seriously threaten nearby support levels during yesterday’s selling, and today’s bounce seems to confirm that it was in fact simply a short term pull back rather than the end of the 2013 rally. WTI is still poised to test $100, with RBOB set to test $3.065 and HO $3.20. Above those levels there is at least another dime to the upside on the charts.