Rollercoaster Ride Continues For Energy And Equity Markets

The rollercoaster ride continues for energy and equity markets following Wednesday’s FOMC announcement. Energy futures gave back all of Wednesday’s gains overnight, but have bounced sharply off of their overnight lows.

It seems that stock markets did not like the FED’s signals that it planned to hike interest rates 2 more times in 2019, after announcing its 4th increase of 2018 in yesterday’s statement. Even though this is lower than previous forecasts of 3-4 interest rate hikes next year, based on the price reaction, it appears many were hoping (and/or betting) for an end of the increases as signs of a global economic slowdown are numerous.

So where to from here? From a chart perspective we need to see prices get back above their previous support to break the potential bearish reverse-flag pattern. For WTI that means getting back above $50, for Brent $60. RBOB gasoline futures need to get north of $1.40 and ULSD needs to break above $1.80 in order to reduce the likelihood of another big sell-off.

Notes from the DOE weekly report:

Good news for US refiners: The DOE’s weekly demand estimate for distillates reached a 15 year high north of 4.8 million barrels/day. The bad news? That’s still 500,000 barrels/day less than the amount of diesel produced each day last week, even with a decline in weekly production.

The (potentially) ugly news for diesel consumers? At 24 days of forward cover, diesel inventories are at their lowest levels since 2008 (when diesel futures surpassed $4/gallon) leaving the market susceptible to price shocks in the coming year, particularly as we get closer to the deadline for the IMO Marine diesel spec change.

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