Analysis Paralysis
The run up in futures pricing since June sure seems like a mountain (see graph). As the song says, “It’s hard to move mountains when you’re paralyzed”. Distillates are...
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The run up in futures pricing since June sure seems like a mountain (see graph). As the song says, “It’s hard to move mountains when you’re paralyzed”. Distillates are...
Unfortunately you are all reading your nightly pricing correctly. As seen below, ULSD prices have risen almost a full $1 in the last four sessions.
As I mentioned earlier in the week, it is likely due to a short squeeze versus anything fundamentally related to the Oil Markets. Although there are some pointing to distillate stocks being at their lowest level in 14 years as a driver, it appears that is being over played because demand for ULSD has fallen for the fifth week in a row.
Front month MAY ULSD (which falls off the board Friday) is a full $1 higher than JUNE trading presently at $4.9950. It is $1.50 higher than front moth NL @ $3.5250. Its important to note the disconnect to Crude which is “only” at $103 and change. For those of you that remember July of 2008, when Crude was at an all time high of $147, Diesel was trading just above $4.00. All the more evidence to point towards a squeeze versus fundamental factors.
The problem is, how long does this last? Looking at the strip above, the backwardation is still healthy out through December, not as pronounced but still present.
I would like to say that we are past this after Friday, but my feeling is the rocket ship-feather theory will hold true.
Monday strikes again!
Friday saw Brent Crude drop to almost a 27 month low, dropping to $92/bbl, and WTI for November trading at its lowest level since April 2013.
Today we started with ULSD trending down and gas up slightly, and gas continued to climb through the early afternoon. At the close, ULSD settled up 50 points to 2.6213 and gas shot up +.0347 to 2.4132. Thanks a lot, Monday.
The dollar continued to strengthen throughout last week, and an unexpectedly good (a relative term) jobs report for the US Friday provided further evidence that the economy is stable to moving forward. The dollar continues to soften commodity futures generally, despite the current geopolitical atmosphere.
Today stocks pushed lower in the US on concerns that the dollar (which actually dropped slightly today) and continued good economic news would push the Fed to raise interest rates. The Fed minutes are due out Wednesday, which should give investors a better idea on the timeline.
Additionally, supply remains strong and is surprisingly mitigating the factors we almost always see a surge in premium and volatility with.
There is concern among some analysts slash talking heads that a drop to below $90 per barrel on Brent will spook OPEC into pressuring the Saudi's to cut demand. However, OPEC production hit a 2 year high in September (31 million bpd) and thus far, as discussed, the Saudi's have vowed to hold production targets. We also saw rising production in Russia and Libya, so despite a potential benchmark issue there appear to be no issues on the horizon on the supply side (knock on wood).
Futures ticked down yesterday on positive domestic economic news, even as international turmoil escalated. Inventories were expected to show draws, but other economic data out indicates the economy is continuing to recover. The CPI (consumer price index) was up 0.3%, and existing home sales came in up 2.6%, both of which are good indicators. Today, gasoline continued downward, closing down -.0206 but ULSD inched up a little to 2.8754 (up 0.0212 on the day). Not too shabby considering all the insanity internationally.
Here's a quick rundown of the international issues that could play out in the markets in the coming days:
In the wake of the tragic Malaysian aircraft crash, tensions between Russia and the West have hit almost Cold War proportions. Russia and Ukraine both wasted no time blaming the other for causing the crash, and the US jumped in and immediately implicated Russian Seperatists in Ukraine for launching the fatal missle. France and the US are proposing further sanctions, with the US sanctions targetting financial and energy companies by way of denial of bonds with a 90 day plus maturity.
Today, two Ukrainian fighter jets were shot down by Russian seperatists, lending creedence to the theory that seperatists downed the Malaysian jet, and perhaps implying that sanctions against Russia may be escalated, which could potentially have an impact on markets.
Israeli ground troops invaded Gaza earlier this week after a ceasefire agreement was violated by Hamas in under 4 hours. Tuesday afternoon the FAA grounded all US flights to or from Israel for at least 24 hours on concerns of a Malaysian like incident after a rocket struck within a mile of Israels largest airport. Israel called the US flight cancellations a "coup for hamas", at least on a PR level, which isnt helping urge reconsideration of a cease fire on either side.
Hopefully, in addition to international crises being negotiated, the Domestic news will continue to suggest a strengthening economy and mitigate price spikes.... Stay tuned!
Front month Heat continues to find comfort above the 2.95 level as traders weigh the recent barrage of news. Earlier in the week, many feared an almost inevitable Government shutdown, but those fears were erased late Wednesday as a House Bill passed that would fund activities for the next several weeks. While Inventories were in my opinion somewhat Bearish, the news didn't take so well yesterday and pushed futures up slightly ahead of today's report that showed the US economic growth rate fell in line with expectations with an increase of 2.5%. Additionally, new applications for unemployment benefits fell by roughly 5000 to 305,000. The Bullish overtures of a growing economy almost always will spur a rise in Commodity futures. The Syrian problem continues to drag on in a political stalemate as Russia successfully blocked a UN resolution which would have authorized military strikes. While news may be what most are pointing to as the driver, one must give the technical analyst his due. The Failure of front month HO to settle below the 2.95 mark has spurred buying over the last two sessions. This level continues to be a huge support area. At the Close, Crude gained .37 to $103.03, RBOB added .0321 to $2.7050 and HO settles up .0306 to $3.0037
RBOB Close
|
CLOSE CHANGE
OCT 2.7050 +.0321
NOV 2.6887 +.0318
DEC 2.6647 +.0286
JAN 2.6557 +.0276
FEB 2.6583 + .0272
MAR 2.6675 +.0269
|
HEAT Close
|
CLOSE CHANGE
OCT 3.0037 +.0306
NOV 2.9993 +.0280
DEC 2.9930 +.0272
JAN 2.9885 +.0265
FEB 2.9824 +.0251
MAR 2.9689 +.0234
|
Much of what we view every day in this business is based primarily on expectations and ultimately, reality. Today was precisely one of those days. While most expected slightly bearish inventory numbers, the news at 10:30 that showed Gasoline's up 2.6mbl and Distillates up 2.3mbl well beat expectations of builds of 700k and 800k respectively. Pits reacted by selling off over four cents in each HO and RBOB. With Crude showing a draw of 600k barrels while many expected a build of the same amount, you had to think how long the fall would last. At the same time, the European Zone released figures that showed its GDP fell for the sixth straight quarter. Soon talk of more FED stimulus took over the trade and the buy back gained momentum. From what started out as a solid down day, turned on the expectation of what we think might happen, thus pushing the NYMEX higher by the closing bell. At the close, Crude gain .09 to $94.30, HEAT added .0071 to $2.8801 and RBOB led the charge jumping .0294 to $2.8670, almost .10 higher than the intraday low.... Looks like some expect a busy driving season.
RBOB Close |
Close Change
JUN 2.8670 +.0294
JUL 2.8480 +.0276
AUG 2.8192 +.0260
SEP 2.7853 +.0247
OCT 2.6407 +.0190
NOV 2.6130 +.0166 |
HEAT Close |
Close Change
JUN 2.8801 +.0071
JUL 2.8742 +.0080
AUG 2.8797 +.0095
SEP 2.8892 +.0107
OCT 2.8977 +.0111
NOV 2.9031 +.0107 |
RBOB CLOSE
|
CLOSE CHANGE
FEB 28050 +.0271
MAR 28105 +.0249
APR 29399 +.0161
MAY 29264 +.0118
JUN 28979 +.0091
JUL 28633 +.0081
|
HEAT CLOSE
|
CLOSE CHANGE
FEB 30242 +.0144
MAR 30151 +.0116
APR 29951 +.0073
MAY 29741 +.0051 JUN 29611 +.0022
JUL 29612 +.0000
|
RBOB CLOSE
|
CLOSE CHANGE
SEP 27884 +.0018
OCT 27558 +.0086
NOV 27118 +.0113
DEC 26902 +.0121
JAN 26907 +.0129
FEB 27008 +.0133
|
HEAT CLOSE
|
CLOSE CHANGE
SEP 29607 +.0182
OCT 29690 +.0198
NOV 29761 +.0202
DEC 29825 +.0207 JAN 29901 +.0216
FEB 29876 +.0218
|
NYMEX futures reached their highest levels in almost two weeks. On the heels of a pre Thanksgiving jump, players got right back at where they left off on Wednesday....
It appears that the last four sessions have completely erased the pessimistic view, or fear of the Sachs case that saw HEAT correct almost 10 cents in two days. We have now come all the way back to where we were on Thursday of last week. The quick correction had Bears beating their drums that $2 heat was on the horizon, and admittedly so, I was listening. The ability for the market to gain back what was lost on
1. Very weak fundamentals (lots of supply…low demand)
2. Thousands of flights in Europe grounded (more demand loss)
3. Goldman Sachs investigation (more guys to fall)
Has to have one thinking …. “this thing has a mind of it’s own”. It does. The notion that we are on an economic upswing has participants rolling the dice that the US economy still has room to improve. At the close, Crude added $1.37 to $85.08, RBOB jumped higher in the last 30 minutes of the session adding .0529 to $2.3531 and HEAT gained .0355 to $2.2505. It’s like déjà vu all over again as we head into another weekend searching for direction and reason.