Markets Climb The Wall Of Worry

WTI was able to punch through $40 in Monday’s session, sparking a move to fresh three month highs for both oil and refined product contracts overnight. Equity and energy markets appear to be climbing the wall of worry in hopes that reopening can continue despite rising infection counts, and the fact that the U.S. and China trade deal is still moving forward.

RBOB gasoline has led the way for much of the eight day rally, and looks to be the first to test new upside resistance at the 200 day moving average just under $1.34. ULSD looks like it has room on the chart to close the gap left by the March meltdown with a move to $1.38. While the weekly charts suggest more upside is likely, faster moving indicators have prices in overbought territory, setting the stage for another round of fast and heavy selling as we’ve seen a handful of times already during this recovery rally.

A WSJ article this morning suggests refiners may ultimately put an end to the bull run for crude, as crack spreads continue to hover around break-even levels. The crack-spread chart below shows that the wide crude spreads that had enhanced margins for many U.S. refiners for years have also tightened up, adding to the challenge of this most unusual operating environment.

A lack of export demand has been a big challenge for many U.S. refiners in the past few months, and an EIA note this morning suggests that it’s not just refined product struggling to find a home overseas as LNG exports have been slashed in half this year.

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