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A Heavy Round Of Selling Is Sweeping Across The Energy Markets To Start Tuesday’s Trading

Tuesday, Feb 8 2022
Market Talk

A heavy round of selling is sweeping across the energy markets to start Tuesday’s trading, after a big reversal lower from multi-year highs in Monday’s session. 

Nuclear negotiations with Iran are once again getting credit for the sell-off, even though if you get past the headlines it appears that the odds of an actual agreement that would allow more Iranian crude to reach the market is still a long way off. 

It’s more likely that the pullback has more to do with traders (ie the trading programs that account for the bulk of trading activity daily) are taking another round of profits after several short term technical indicators moved deep into overbought territory following last week’s big rally. Both RBOB and ULSD contracts are still about 5-6 cents above their bullish trend-lines on the weekly charts, so it’s too soon to call this selloff anything more than a short term correction. Although a much bigger drop seems likely once supply concerns ease later in the year, it’s hard to see how sellers will be able to keep the upper hand near term as long as the threat of Russia using its oil weapon remains. 

The pullback is also following reports that 3 large refineries, 1 on the East Coast and 2 on the Gulf coast, are restarting operations after having units knocked off-line last week during the winter storm.  

The 14 cent drop from the Sunday night highs for the March ULSD contract has taken some of the sting out of the extreme backwardation in diesel markets, that’s been wreaking havoc on cash markets around the country as traders struggle to adjust to the big swings in the futures spreads. This has opened up some unusually large spreads between markets with 20+ cents separating diesel values in the Midwest where the seasonal demand doldrums are at their worst, compared to the Gulf & East coasts that are seeing heavy demand from winter weather and a strong export market. 

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