Energy Market Updates

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Basis Blowout

Cash vs Future Spread & Precarious Supply Picture Keeping Diesel Users on Edge

Many refer to Diesel as being the backbone of the American Economy.  Trucks, trains, equipment, and ships all rely upon diesel for power.  So when a blowout happens, it can affect mostly all aspects of our daily lives - from the food we buy, to the clothes we wear, and even the way we operate our businesses, even if those blowouts are short lived. 

Since last Thursday we have seen the spread between future prices and cash prices grow to $.80 on Monday only to subsequently fall to $.55 yesterday.  (see chart below).  Tuesday and Wednesday saw diesel values weaken as deals appeared to be getting done for physical product delivered into New York Harbor. 

The Northeast continues to see distillate inventories hover around precariously low levels as a new round of SPR releases were announced this morning.  This appears to be the path that Government Officials want to take but some don’t believe it to working for us New Englanders and distillate users, although Crude and Gasoline are relatively stable.  Rather than releasing crude, some suggest releasing finished diesel reserves to calm markets as the backlog in the refining process and subsequently exporting the finished goods at a higher rate than selling domestically is only prolonging the recovery process.  Capping or limiting exports looks to be off the table as it could throw global markets into a spiral and appears to be Politically too risky.   

While Heat and Diesel values appear to be correcting (knock on wood!) we are still almost $1 higher than the beginning of the month.  I would expect the next several days to be very choppy in terms of prices.  Today as an example ULSD started down over $.04 and at present is up almost $.02, not even taking into account what cash markets will actually do.  I cannot stress enough how important it is, and will be, to have a strong relationship with your supplier during these times.  Having various contracted supply points, along with the ability to get you product, will likely be a defining characteristic over the next several months.

Cash vs Futures

 

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Cash vs NYMEX Blowout on Supply Concerns Keeps Diesel Elevated

If there is one thing that I am sure of in all my years in this Industry it is that Customers do not like surprises

The last two weeks (or two years for that matter!) have certainly offered up many surprises.  News over the last three days has highlighted “Crude prices falling”, however, the disconnect from Crude pricing to the finished diesel product pricing has never been more sharply contrasted. Front month Diesel futures have once again skyrocketed $.80 to touch the $4.00 level in the last two weeks for the fifth time.  The rapid rise and rapid drop cycle doesn’t seem to be ending anytime soon. 

The big surprises have come in the way of Cash Diesel prices rising more than futures.  As illustrated above, diesel cash values have blown out over $.50 over futures values.  The month prior they were practically even, and historically they tend to only be a few cents apart.  So why?  

Realistic concerns over product shortages in New York Harbor hit the market in the last several days as not many offers were taken on barges. What that means is that product is still moving overseas versus into US ports, thus slowing resupply and pushing up pricing for any product already in tank.  Cash markets move racks more than futures do, although most only look at the NYMEX as the driver. These types of cash to screen blowouts are historically short lived. (We can only hope this is not another “historic” trend change, I think we can all agree that we’re tired of those).

Be sure your Supplier has adequate, guaranteed supply and the ability to get product to you as the fewer the surprises you have, the better.

 

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Futures Move Higher as Stimulus Plan Takes Shape

While much of todays chatter centered around the wild cash blowout of gasoline on Friday, up some .24 in NY harbor, markets found a way to turn positive ahead of the close. Many are betting that a new round of Quantitative Easing, also known as QE3, will be announced after this weeks FED meeting. This bet was doubled down after Fridays disappointing payroll figures.While the stimulus plans are designed to boost economic activity, Commodity prices are often collateral damage and many agree that we might see higher prices with this round. Keeping the pits in check are the fundamentals which, even besides this weekends short term blowout, the nation is well supplied. Additionally there was a memo sent by the Saudi Oil Minister confirming the oversupply of product as well as the unsubstantiated value of the current marketplace. Look for the remainder of the week to be a wild one. At the Close, Crude finished up .12 to $96.54, HEAT gained .0179 to $3.1668 and RBOB .0044 to $3.0240

 

Daily Heating Oil Chart

Heat map

RBOB CLOSE
CLOSE CHANGE
 
OCT 30240 +.0044
NOV 29051 +.0059
DEC 28304 +.0059
JAN 28013 +.0054
FEB 27965 +.0058
MAR 28059 +.0059
HEAT CLOSE
CLOSE CHANGE
OCT 31668 +.0179
NOV 31674 +.0167
DEC 31666 +.0167
JAN 31639 +.0173
FEB 31524 +.0186
MAR 31322 +.0192
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