Ripple Effect of Winter Weather Continues to Dominate Energy Markets

On February 26, 2014 by TradingDesk

The ripple effects of winter weather continue to dominate the talk and price action in most energy markets, with Nat Gas taking back its forgotten role as the most volatile energy contract after dropping as much as 27% over the past 2 days. With another round of frigid temps striking the Midwest today – and already one Illinois refinery unexpectedly shutting down a crude unit – expect that trend to continue until warmer weather takes hold.

RBOB gasoline futures are completing a short-term rounding top on daily charts, with the next stop a test of the 200 day MA at $2.7740. The contract may be (temporarily?) saved by Friday’s expiration however, as the April contract takes hold. The key pivot point there remains $3, and now that the forward months are all trading below that level, more bearish signals are flashing, contrary to what we’d typically expect as driving season approaches.

The main story in ULSD continues to be volatile time spreads as regional supply shortages remain following the winter-weather induced demand spike, and a constant shuffling of import cargoes keeps traders guessing. Another round of winter weather this week should add to the volatility.

WTI Bounced off of support at $101 yesterday, and is pushing back towards resistance in the $103 range. If that breaks, a move to $110 looks likely, although the sharply backwardated curve – similar to ULSD – suggests that lower prices are coming once near-term supply issues are sorted out.

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Market Update (3)

Ethanol’s discount to RBOB is collapsing in the face of logistical hurdles that are keeping railcars from replenishing stocks around the country.

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ULSD is steeply backwardated as the market struggles to replenish stock piles after the worst winter weather in 20 years.

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WTI remains backwardated as supplies race to keep up with new pipeline capacity and high refiner demand.

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Long Term up trend in ULSD remains intact.

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