RBOB & ULSD Futures Continue to Consolidate

On July 30, 2013 by TradingDesk

RBOB and ULSD futures continue to consolidate around the $3 mark, but have been unable to sustain a move below that level. The longer the two contracts hover around this pivotal value, the more important it will become in determining our price direction heading into the fall, as these periods of sideways trade begin to act like the coiling of a spring. Bears will note that the September contract, which will take over prompt month trading on Thursday, is already trading below $3, and may act as an anchor on prices.

Meanwhile, the main story in commodities over the past two weeks has been the involvement of major commercial banks in the physical storage and shipping of physical products. Yesterday, the FERC accused JP Morgan of 8 different types of electricity market manipulation, and the bank agreed overnight to a $410 million settlement to appease regulators as it seeks a buyer for its commodity trading unit. While this may not have an immediate impact on prices, it could be the most important paradigm shift in a decade if those with access to the FED’s quantitative easing and other liquidity programs can’t invest directly in energy and other markets.

Despite all of the noise being made over this issue, non-commercial traders (a category of speculator including the large banks) continued to pour into energy futures last week, with both WTI and Brent crude reaching record net-long positions. In the past, such lopsided positions have often marked the turning point in price trends, as buyers simply run out of dry powder and values have nowhere to go but down. This has called several to suggest that current crude oil values – and refined products by extension – are a bubble filled with speculative funds that will eventually pop due to the combination of growing output and weak global demand. We’ll just have to wait and see if they’re right.

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