A Supply Problem Today Will Create A Demand Problem Tomorrow

A supply problem today will create a demand problem tomorrow. That seems to be the theme for petroleum markets around the world as we experience another volatile week of trading.

Energy futures are moving higher again to start Wednesday session after weathering a wave of Selling Tuesday. A bearish outlook for the global economy got much of the credit for yesterday’s big selloff in energy contracts, even though equity markets seemed to largely shrug off the IMF’s report. 

Both technical and fundamental factors are favoring stronger diesel prices near term, while there are some warning signs flashing on the gasoline chart as we reach the time of year when those prices often top out. 

ULSD futures are looking poised to make another run at the $4 mark, after bouncing 17 cents off of Tuesday’s low. RBOB futures meanwhile have several bearish indicators on the charts and threatening to make a run back below $3 if they can’t find some upward momentum in the next couple of days.  

The forward curve charts below show that despite Tuesday’s big pullback, prompt values are still up over the past week, while forward values have actually moved lower for ULSD and Crude Oil, which seems to be a clear reflection of the short supply today, shrinking demand tomorrow phenomenon.

The API was said to show draws in crude oil and diesel inventories of 4.5 million and 1.6 million barrels respectively, while gasoline stocks increased by almost 3 million barrels last week.   That report seems to help explain why WTI and ULSD futures are outpacing RBOB so far this morning.  The DOE’s weekly report is due out at its regular time since Good Friday was not a US Federal holiday.

A report that Russia’s crude shipments dropped 25% in one week was a harsh reminder that we may not have seen the worst of the supply crunch as deals struck before the invasion were still being honored over the past two months. 

Switzerland may be opening a door to a partial solution to the Russian export problem this week, keeping its well-known neutrality and secrecy intact. The Swiss agency in charge of monitoring EU sanctions said it promises to make its rulings on Russian purchases that may fit through the “strictly necessary” loophole strictly confidential.

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