Energy Futures Survive Another Attempted Sell-Off

On January 13, 2014 by TradingDesk
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Energy futures survived another attempt at a sell-off Friday, bouncing off of the same levels that held during Thursday’s session, and ended the week fractionally higher, leaving prices stuck in a sideways pattern. Charts continue to give a mixed message, although more indicators are moving into bearish territory, after relieving an over-sold condition during last week’s back and forth trade. Despite being only 2 weeks into the year, we appear to be approaching a major pivot point on several charts, which could drive price action through the spring, or beyond.

Investment & Hedge funds cut their net long positions in the first week of the year, coinciding with the sharp sell-off in energy prices, and giving some credence to the theory that the price run-up over the last few weeks of 2013 was helped by these funds trying to “window dress” their portfolios by adding to energy positions ahead of year end. Brent crude had the most notable change, as managed (fund) money cut their bets on higher prices by nearly 29% on the week.

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Market Update (3)

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Prices Trying to Move Higher

On January 10, 2014 by TradingDesk
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For a few minutes Thursday afternoon, it appeared that energy prices were starting a major push lower, as RBOB and ULSD futures moved to new lows for the month, and WTI reached its lowest level since May. Buyers showed up in the last half hour of trader however, and most of the losses were reversed by the end of the day. This morning, prices are trying to move higher on little news, so it may be a technical reaction to the oversold condition in each of the contracts. We remain on the cusp of much lower prices should technical support break down near term. If it fails to do so, expect an attempt to start a spring rally before long.

The December Jobs report showed the slowest US job growth in 3 years, and the largest number of people not in the labor force in 35 years. So far, the reaction to the bad news has been modestly positive for equity and energy prices – with weather taking much blame for a lack of jobs and fuel demand – and presumably due to the theory that bad news will keep the FED’s monetary stimulus in place for a longer time.

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THE EMPLOYMENT SITUATION — DECEMBER 2013

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

The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and wholesale trade but was down in information.

HOUSEHOLD DATA

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Demand for Gasoline and Diesel Plummets

On January 9, 2014 by TradingDesk
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Another week of exports (net of imports) north of 2 million barrels per day was not enough to keep refined product stocks from swelling, as demand for gasoline and diesel – as it often does in January – plummeted. The report from the DOE helped push RBOB and ULSD futures lower on the day, although several spot markets across the country trimmed those losses as cold-induced refinery issues continued to pop up throughout the Midwest.

Prices have moved sideways this week, after a sharp sell-off to begin the year. At this point, despite prices rising modestly today, it appears on the chart that this is likely to be a bearish continuation pattern, meaning we should see lower values once this period of consolidation is finished.

Washington DC is becoming center stage for 2 major debates over the next week that could have long-term consequences for the energy industry. A group of US refiners are meeting to consolidate their lobbying efforts against lifting a ban on US Crude exports. Meanwhile, the senate has announced a hearing next week to discuss the role of Wall Street banks in physical commodity markets. While there is likely to be more hot air than results from both events, either issue has the potential to have a major long term influence on energy prices.

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Market Update

DOE Weekly Report

On January 8, 2014 by TradingDesk
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DOE Weekly Report

Refinery Issues Push Refined Product Futures Up

On January 8, 2014 by TradingDesk
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A rash of refinery issues – from Chicago to New Jersey – helped push refined product futures up by nearly 1% Tuesday, and Midwestern spot gasoline prices moved up by almost a dime. The cold weather blanketing much of the nation were to blame in most instances, as instruments and chemicals involved in the refining process are simply not made to operate in the extreme temperatures. Refined product terminals across the Midwest and South East also reported a variety issues, from fuel and additives gelling to delivery lines freezing. The good news is that – so far – it doesn’t appear that any of the damage reports suggest long term issues, and warmer weather is on the way.

The forward outlook for pricing remains murky from a technical perspective, and while prices remain near support levels that could trigger another 15-20 cents of downside if broken, we are rapidly approaching the timeframe for a “spring” rally in prices. Each of the past three years has seen moves of more than 30 cents, and with mixed technical and fundamentals, the seasonal influence could certainly take charge.

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Market Update

New January Lows Set

On January 7, 2014 by TradingDesk
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Refined products were up by more than 1% this time yesterday, only to pull back in the afternoon and finish slightly in the red for the day, setting new January lows. Overnight, they’re trying to rally once again. Welcome to 2014 trading, I hope you don’t mind a little whiplash.

Libya continues to top headlines, as their navy opened fire on a ship trying to load at a port held for months by protesters. The cold weather sweeping the nation caused minor upsets at a handful of refineries – most notable are the Exxon and Citgo plants in the Chicago area – but so far it appears that supply assets have not been materially impacted.

Speculative money poured into energy futures as of Dec 31st, according to the latest commitments of traders data, suggesting that it’s been a rough start to the year as prices tumbled and those long positions lost money. There is an argument that funds will often add to positions at year end to improve the look of their year-end financial statements. If that is true, and based on the past week’s action, we may be witnessing an exodus of investment dollars out of energy futures. The question will be if the sell-off forces even more selling as leveraged positions are forced to unwind in order to meet margin calls. With the big 4 petroleum contracts all balancing on the edge of a major move to the downside, the action could become severe if support breaks down.

Commitments of Traders charts below. For more information go to:

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

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Prices Bouncing this Morning

On January 6, 2014 by TradingDesk
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US refining throughput that hit its highest levels since 2005 and plunging demand estimates in Friday’s DOE report helped keep the selling pressure on energy futures, which started 2014 with nearly 14 cent losses in the first 2 trading days of the year. A week ago the stage was set for a major technical breakout to the upside in both RBOB and ULSD, but after dropping by 20 cents now both are threatening a major push lower. The volatility of the past few weeks has left technical studies in a mess, and providing little direction. Fundamentally, the major themes of rapidly increasing domestic production of crude oil, near-record refining rates racing against record levels of refined product exports continues to play out – net product exports reached another all-time high above 2 million barrels a day last week – without a clear advantage to drive prices.

Prices are bouncing this morning, as perhaps some traders or algorithms decided that last week’s selling has out-kicked its coverage, and on the latest round of rumors in the Libyan port drama. This time, a Libyan navy vessel is alleged to have stopped a cargo from loading illegally in an eastern port shuttered since the summer by protests. Although the accuracy of reports from the region are approaching comical levels not seen since Baghdad Bob, the 1.2 million barrels/day of crude that’s been kept out of the global market due to protests has the ability to tip the scales for 2014 energy prices.

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Market Update

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DOE Weekly Report

On January 3, 2014 by TradingDesk
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DOE Weekly Report

A Wave Of Selling

On January 3, 2014 by TradingDesk
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A wave of selling took 3% out of most energy futures in the first trading day of 2014. Rumors of Libyan crude production coming back online – still not confirmed today – and liquidation by funds holding near-record length in WTI and Brent took most of the blame, although a surging dollar and dropping equities seemed to contribute to the action. When the dust settled, it was the biggest drop in 4 months, and refined products are left on the cusp of another major move lower after having wiped out the past two weeks’ worth of gains.

The charts below show that ULSD futures have broken below their upward trend-line that’s held the rally since November, while RBOB is still holding above a similar line. Seasonally we would expect that ULSD would outperform gasoline due to cold weather heating demand and reduced driving. If RBOB breaks $2.68 today, it’s likely that it will catch up to the ULSD losses in a hurry. WTI and Brent are both perched in similarly precarious positions. One day of trading certainly does not make a trend, but the sudden shift from a bull market to a bear hints that more selling is on the way.

A safety alert from the Department of Transportation concerning the flammability of Bakken crude oil is grabbing attention, and is sure to keep the debate over energy infrastructure in the main-stream to begin the year. While this may not have a significant impact on outright prices – yet – it does seem possible that it could cause significant volatility in the spread between grades of crude oil, and keep regional product prices dislocated as mid-continent refiners rush to take advantage of the excess margins.

 

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Market Update

ULSD futures – prompt month.

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RBOB Futures – prompt month

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Soft Start to 2014 For Energy Futures

On January 2, 2014 by TradingDesk
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It’s a soft start to 2014 for energy futures, trading down roughly 1% this morning. The latest claim from Libya that they intend to re-open a 350,000 bpd oil field in the next 3 days seems to have sparked the selling, although skepticism remains due to several “false starts” since protests shuttered most of the country’s production a few months ago. The dollar is having a strong day vs. the Yen – reaching another 5 year high – and the Euro, which may also be contributing to the weakness in energy commodities. The correlation between the dollar and energy prices broke down somewhat in 2013, after 4 years of being attached at the hip, and their relationship could be a key factor in price movements for 2014.

RBOB and ULSD prices are now down a dime from the highs set 3 days ago, wiping out more than half of their December rally in just a few sessions. ULSD will have a key test of support around $3, and RBOB will need to break $2.70 if this latest sell-off is to become a trend. Short term technical indicators have moved into neutral / bearish territory, but the trend lines from the rally that began early in November and has added 20+ cents to both products have yet to be tested. We have seen strong first quarter rallies each of the past 3 years, and if support holds near current levels, another push higher seems likely, despite today’s drop.

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