Energy Futures Moving Into Red Again

Energy futures are moving into the red again this morning, threatening their October lows, as fears shift rapidly from the world facing a shortage to an excess of oil supply, and as equity markets around the world remain on shaky ground.

It’s a bit unusual to see ULSD futures leading the move lower as the diesel contract is the only 1 of the big 4 petroleum futures to still be trading above the bullish trend-line that started last July. RBOB gasoline futures meanwhile still look the most bearish after wiping out 8 months’ worth of gains in just the past 4 weeks.

WTI and Brent are both on the cusp of a bearish outside-down pattern for the month of October (setting a higher high, then a lower low than previous month’s trading) which is known as a classic sign of a trend reversal and could spell more downside ahead.

As the charts below show, the October Sell-off has all come in the front 12-18 months of the forward curve, with values for both Brent and WTI actually moving higher 2 years and further out. That move from steep backwardation to contango in the front months is reflective of short term supplies being able to cover the expected declines from Iran and Venezuela, while doubts linger about the long term options to keep up with global demand.

(https://s3-us-west-2.amazonaws.com/cosmicjs/6fbb3a50-dc47-11e8-9320-2da6beaa5183-Market_Talk _1030.pdf)