Bearish Momentum Builds In Energy Markets Despite Tight Supply Signals

The sell-off in energy futures continues for a 4th straight session, with oil prices now back below $80/barrel, and refined products reaching 3-month lows that will soon bring much needed relief to consumers at the pump. The selling comes despite the fact that the U.S. & Iran are still arguing about the status of the all-important Strait of Hormuz, and Israel is not ending its campaign in Lebanon.

While there are many more questions than answers on the “deal” and its ramifications for physical markets, the only question near term for futures is how low can we go? For RBOB gasoline, we saw prices dip to the current $2.89 range 3 times in March and April only to see a strong rally each time. If you’re a believer of the trading adage that “There’s no such thing as a triple bottom” then you’ll see this chart support as nothing more than a speed bump as prices target the March 10th low at $2.5084 and possibly into the mid $2.30s.

ULSD futures are also close to the March 10th low at $3.1233 and if they break here it looks plausible they’ll make a run at the 200 day Moving Average of $2.91, even while domestic inventories are pushing 20 year lows and refiners are running at an unsustainable pace.

Speaking of which, the storm system sweeping the Gulf Coast this week is now given 60% odds of development, after the NHC gave it just 10% odds last week. Whether or not this storm gets an official name, AccuWeather forecasters are saying the tropical rainstorm will create flash flooding risks for a wide portion of the region, and will bring the risk of power outages to refinery row.

It’s not just the Gulf Coast hub facing severe weather this week either, as the Chicago area is facing an elevated storm threat with high likelihood of tornadoes tomorrow. You may recall that a near-miss from a tornado caused the Exxon Joliet IL refinery to be shut for an extended period last summer.

Ukraine hit the 210mb/day Gazprom Moscow refinery with a strike overnight, continuing the ramped up pace of attacks on Russian energy infrastructure. A Ukrainian news source now claims that more than 2 million barrels/day of refining capacity (roughly 1/3 of Russia’s total and more than 2% of the Global total) is currently idle due to the strikes, but the actual figure is impossible to calculate, even if you’re a Russian.