Energy Futures Are Bouncing Sharply After A Big Monday Sell-Off

Energy futures are bouncing sharply after a big Monday sell-off as the search for direction continues to be the theme so far of the new year.  

ULSD futures have alternated between gains and losses in each of the 6 trading sessions so far in 2024, and today’s rally has them once again challenging the downward sloping trend line that’s kept rallies in check ever since prices topped out north of $3.50 back in September until bottoming out a $2.48 in December. A break and hold above the $2.65 level this week for ULSD would confirm a short term “W” pattern that should propel prices quickly to $2.80 to fill the gap left behind by the roll to January futures at the start of December. The technical landscape is less bullish for WTI and RBOB futures that look stuck in neutral and content to continue in this recent back and forth pattern for a while.

Rumors of shipping companies making pacts with the Houthi rebels for safe passage through the Red Sea seem to be contributing to the big back and forth this week, although several large shippers have denied any deals being discussed.  Meanwhile, a Reuters analysis shows that despite so many reports about ships diverting around the Cape of Good Hope, the vast majority of oil and refined product tankers continue to take the Red Sea route, accepting the increased risk in exchange for shorter transit times and lower costs.

Chevron’s Richmond refinery reported another operating upset Monday, but the San Francisco spot market seemed to shrug off that latest hiccup. 

Meanwhile, the LA area is also dealing with upsets as PBF’s refinery in Torrance reported 3 different unplanned flaring events Monday afternoon and overnight. The LA spot market had come under heavy selling pressure to start the year as the annual demand doldrums caused inventories to swell, so traders may shrug this off, although it’s too early to say whether or not those events spark any buying interest. 

Basis values on the Gulf Coast have been rising steadily since bottoming out in early December. ULSD basis values climbed from a record setting discount of more than 44 cents for prompt barrels on December 11th to an 11 cent discount today. The move for gasoline grades has been less dramatic, but has been enough to send values for shipping barrels along Colonial back into negative territory. Those negative shipping values should back up barrels into the Southeast after a few months of tight supply while shippers tried to maximize their movements into New York harbor.    

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