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Energy Prices Erase Monday's Heavy Sell-Off

Tuesday, Feb 4 2020
Market Talk

Energy prices are erasing most of Monday’s heavy sell-off, on the heels of rebounding stock markets around the globe. There’s a feeling that this is yet another sigh of relief rally as the spread of the Coronavirus outside of China has decelerated this week.

WTI traded below $50 for the first time since January 2019 during Monday’s meltdown, while ULSD futures broke below $1.60 for the first time since August 2017, trading as low as $1.5684 overnight, before rallying this morning. As we witnessed during last week’s one-day bounce, we’ll need to see prices sustain this rally before daring to call a bottom in the market.

If the overnight lows did in fact set the bottom for the energy market, we should also see a runaway buying spree at some point this week as traders (or more likely their trading algorithms) react to the extreme oversold condition on the charts, and create a snowball effect of short covering.

Reuters is reporting that Chinese refineries are slashing output by the most in a decade in response to the temporary reduction in fuel demand driven by travel bans.

Record inventory? While the U.S. has more gasoline in storage than ever before, West Coast prices are soaring as yet another refinery hiccup sent CARBOB basis values north of 40 cents/gallon this week. We did see a similar basis spike this time a year ago as the region started its spring RVP transition, and then those values dropped to single digits by the end of February.

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