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Fuel markets appeared to have shrugged off what could have been a historic week, should an actual Coup attempt in Russia transpired. The current market mood appears to be focused more on actual supply and demand factors. Crude inventories showed a massive 9m barrel loss this week while finished gas and diesel were relatively flat. Gasoline futures soared yesterday taking ULSD along for the ride, although not as much.
It appears that the Canadian Wildfires have spread a cloudy haze not just over the Northeast but also over the collective minds in the Fuel Markets. The last few days produced data that simply put, has baffled market sentiment. First to note, Diesel prices are roughly $2 LESS per gallon today versus a year ago. Thus, one would assume production and inventories to fall. This week’s Inventory report showed production is UP 2% and Inventories are UP 2.5%, yet future pricing is about $.20 HIGHER than a week ago. Again, usually higher stocks trigger lower production and falling prices.
As we mentioned, futures markets traded in a wide $.20 range for the last month and we are just about back to where we started on May 1st. Recent drops center primarily around a pending agreement on the National Debt Ceiling which is expected to roll through the Houses in the coming days. More importantly to take notice, is that we have shrugged off the huge inventory losses last week and focused more on Chinese demand. Reports that China’s manufacturing Index fell ½ percent signals the global demand for products and fuel may be slipping. Domestically, notes that the Labor market remaining tight may hint that the FED may lift rates in the coming week one last time. And we might see a bump in Inventories this week unexpectedly as reporting can often get skewed around holiday weeks. We are also seeing Canadian Oil fields restarting after being shut down due to wildfires.
Typically Inventory levels and price direction have an inverse relationship. When Inventories rise, prices fall…. When Inventories fall, prices rise. As one said, “this ain’t no typical market”.
Futures markets appear to be content with being rangebound as the last month has seen us bounce back and forth by about $.25 in Diesel. The last four days has seen diesel futures fall almost $.15 in value.
Even though Diesel futures have fallen roughly $.20 in the last two days, we are still almost $.40 higher than the beginning of the month. Still optimistic that we will considerably lower in the coming weeks, however.
We have been saying for several weeks that the distillate inventory picture is not the brightest, even more so in New England. The news cycle has taken hold of this, and judging by the number of calls and conversations I’ve had in the last week, it is starting to sink in.
If you were to read the news, it is almost impossible to tell which way the Oil markets are going as the volatility has all pits in wild daily swings. Fortunately for most of us, diesel prices have corrected over $.30 in the last three days and all but erased the early August climb.
EIA Inventory reports for the week ending March 22 indicate that Crude inventories showed a build, while finished products (Diesel & RBOB) showed draws.
Once again the NYMEX started off the session well into positive territory with a strong Sunday night open. Much of the gains were attributed to Chinese data released Sunday that showed its Industrial Output rose year over year, signaling stronger demand. But as the day wore on, continued worries about Europe, as the Italian Prime Minister abruptly resigned, appeared to be entering into Traders minds. That fear turned inward as the real concern centers around US distillate demand. Its Common knowledge that inventory levels of distillates are on the very low end of the range, so in the minds of most, the lack of demand is overshadowing the lack of product. Others point that this is just the season to book some profits as traders square up the quarter. I'm pleasantly surprised that we have maintained HO below the $2.95 level, a clear level of support is difficult to define at this time. At the close, Crude fell .37 to $85.56, RBOB was up only 7 points to $2.5981 and HEAT led the charge lower falling .0191 to $2.8962.