Energy And Equity Prices See Strong Gains In Early Trading

It’s a Risk On Wednesday as energy and equity prices are both seeing strong gains in early trading with optimism for life after Coronavirus taking some hold.

The API estimated that U.S. gasoline stocks dropped by 1.1 million barrels last week, while crude oil built by just under 10 million barrels and diesel stocks increased by 4.5 million barrels. The DOE’s weekly report is due out at its regular time.

The drop in gasoline stocks is the latest in a series of signs over the past week that domestic gasoline consumption is picking up. While demand remains far from where it usually is this time of year, it's a positive change that helps alleviate storage concerns for now. Gasoline cash markets are also reflecting this optimism with continued buying across several regions this week, pushing differentials up by 40 cents or more in some markets since bottoming out earlier in April.

May futures for RBOB and HO expire tomorrow, and are already seeing much lighter volumes than normal, so don’t be surprised to see some wild swings as those contracts go off the board. The super-contango across energy contracts means that June RBOB should open up near the $0.77 range that held resistance for several days earlier this month. This should provide a good near-term test of the staying power of this recent rally.

The FOMC is wrapping up a two day policy meeting today, and will be making an announcement this afternoon. With the FED already pulling out all the stops, including buying up more than $2.5 trillion worth of various assets and slashing interest rates to essentially zero, no one seems to be betting on an interest rate change from this meeting. In fact, according to the CME’s Fedwatch tool, traders aren’t expecting any change in interest rates for at least a year.

Click here to download a PDF of today's TACenergy Market Talk.