Energy Market Updates

In what should have been the start of a nice 3 day pullback yesterday, turned into a resetting of ideas. While not long term positive news, morning reports of Inflation...

A massive increase in demand for gas and diesel stalled the downward correction we have been seeing as of late.  Adding to that, both finished products inventories fell last week, diesel futures took the lead and jumped up more than $.05 yesterday.  While we seem to be set for an early spring and hopefully a more robust construction season, the 15% increase in distillate demand has many scratching their heads.  Even with the latest increase, the 4 week average for demand on distillates is still relatively flat.  Gasoline average demand is still down about 3%, even after last weeks 6.4% increase.  Buoying pricing was also the first reported fatalities onboard a Commercial Vessel from Houti attacks in the Red Sea area.  A major global shipping lane, this latest attack will likely all but halt most vessels from entering the area.  The FED is in a holding pattern on rates, but have hinted that they will make “appropriate” adjustments in the coming months as inflation appears to be stalling, how that influences fuel pricing remains to be seen.  I would expect pricing to continue this sideways action and be somewhat range bound for the next week or so.

At first glance of yesterday's inventory report you would assume that a solid up day was in the making.  As has been the case, the devil is in the details.  While all products showed modest drops, they were largely offset with massive exports, known refinery maintenance and switching to winter grade gas.  The largest market mover was the FED maintaining rates but signaling they expect possibly 2 more rate hikes in the coming months.  A large sell-off took hold pushing diesel futures down almost $.10 before settling down just under $.05.  The profit taking ideology is that if rates get higher, it dampens economic growth thus curbing overall fuel demand, add in that it makes it more expensive for foreign currency buyers of products. 

Before todays across the board tumble, the markets had been rather stable this week, comparatively speaking, even in the wake of several major relevant news events and economic reports. Let's start it from the top: 

WTI dropped 2.8% today to close out at $44.43 a barrel, while Brent closed out down 2.5% . On the refined products side of the NYMEX, ULSD and Gas both took a pummeling as well, with both down over 4 on the day. To be exact, ULSD closed out down (-.0453) to 1.4772 and RBOB closed down (-.0471) to 1.3488.

Stocks are getting pummeled today in anticipation of Fed Chair Janet Yellen's scheduled 5 o'clock speech on the economy and Fed policy re: rate hikes. (Deja vu anyone?).