Buy the Rumor, Sell the Fact

A very different picture is painted this week after an almost $.18 drop in Diesel Futures posted yesterday, and another $.07 off presently this morning.  Prior to this, it appeared as though we were on a slow progression downward but instead the proverbial bubble burst.  Call it profit taking or a change in sentiment, it is clear that this correction is needed.  Should another heavy down day remain, we could be in for a return of pricing not seen since early May, which is about $.80 lower.  

The market should have seen some support yesterday with OPEC+ announcing they would maintain self-imposed production cuts through the end of November, however the market got an early Halloween scare with demand figures in this weeks Inventory report.  After promoting the narrative of tight supplies for months, most could not look past gasoline demand dropping 7% last week and down a whopping 15% to last year.  Distillates (all diesels) was down 4% last week and over 7% from a year ago.  Buy the rumor, sell the fact.  Diesel futures are down $.30 in the last four sessions and almost $.40 since mid September. 

A very important notion to understand is the persistent backwardation that is staying around longer than your in-laws.  November USLD is priced almost $.15 higher than January.   If it holds, this will prevent suppliers from bringing in excess or uncontracted gallons to the terminals.  In other words, their asset or investment (product), depreciates in value rather than gaining value over time.    As the closer months drop significantly, the outer months typically do not drop as much therefore leveling out the futures strip over time.  So there is some value to look at future pricing even with the high November screen. 

Again, always willing to have a call, in person or virtual meeting, to discuss your specific needs.  In this environment, you can never know too much. Schedule a Call