Energy Complex Moving Sideways

Since setting multi-month lows one week ago, the energy complex has been moving sideways in choppy, back-and-forth trading. Monday’s session was a prime example of this as an early morning sell-off failed to hold and most contracts reversed course to finish the day with modest gains. We’re seeing another wave of selling to kick off Tuesday’s trading, and we’ll have to wait and see if this time it sticks.

US Equity markets are pointing to a sharply lower open this morning after a large sell-off Monday. As the charts below show, the correlation between equity and energy price movements has been weak lately, but if the fear trade takes hold again, that’s typically when we see the two move in lockstep. If that happens, it could be enough to push energy contracts below the lows set last week.

Volumes are already beginning to shrink in both futures and physical markets ahead of the Thanksgiving holiday. Spot market assessment companies will not be open Thursday or Friday, so most rack prices will carry through the long weekend even though futures will have abbreviated trading sessions both days.

We don’t talk about Natural Gas markets often here as they’re beyond the scope of our normal business, but the recent price spike – which has already put at least one trading firm out of business – is worth pointing out. For the past few years over-supply thanks to record US Production have kept the notoriously volatile natural gas prices in check. Lower inventories heading into a severe cold snap across the North Eastern US could put extra demand on heating oil in some markets to supplement for gas supplies.

RIN values have been ticking modestly higher over the past week, in what appears to be acknowledgement that the split congress makes a reform of the Renewable Fuel Standard less likely. Both sides of the debate are eagerly awaiting the official 2019 Renewable Volume Obligation figures, due out November 30.

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