Santa Claus Rally Gripping Markets Around The World

The recovery rally continues for a 3rd day, with gasoline and diesel futures up more than 16 cents since bottoming out earlier in the week. RBOB and WTI futures are both poised to snap their 7-week losing streaks, as a Santa Claus rally seems to be gripping markets around the world.

Even though the traditional positive correlation between equity and energy markets (both move up and down together) and the negative correlation between the U.S. Dollar and commodities (stronger dollar, cheaper oil prices) haven’t been in place for several months, it certainly seems that the optimism following signals from global central banks that we’re set to see monetary policy loosen up next year is impacting all asset classes this week. 

U.S. equities in particular have been overly optimistic about the FED’s outlook for much of the past year, so it’s certainly possible they’re outkicking their coverage once again, but a strong retail sales number released Thursday suggests U.S. consumers continue to be resilient and are perhaps putting the savings from lower gasoline prices to work elsewhere in the economy.

Despite the big bounce, both RBOB and ULSD have some work still to do to break out of the bearish trends on the weekly charts. The first test for gasoline prices comes in the low $2.20s, while ULSD will need to get back above $2.70 to prove this is more than just a short-term correction in a larger bear market. If you’re one who is hoping prices continue to fall, read this. 

The White House is still expected to make an announcement today on its plans for allowing ethanol to produce Sustainable Aviation Fuel, although the modeling needed to prove carbon reductions from that process remains unclear and will remain a hotly debated issue, particularly in an election year. Ethanol producers are looking desperate for a win in this battle as their prices have dropped near a 3-year low this week.

Trouble in the Panhandle: Both the Valero and P66 refineries in the TX panhandle that serve W. Texas, New Mexico and Colorado reported upsets to the TCEQ in the past 24 hours. While those facilities don’t directly impact any spot markets given their relatively isolated locations (AKA BFE) their continued struggles to operate efficiently have kept local rack supplies tight for some time. Meanwhile, Marathon reported that the fire earlier in the week at its Galveston Bay facility only impacted a sour water storage system which is why refining operations were not slowed by that event.

Today’s interesting read courtesy of RBN Energy:  5 ways the market might react to the sudden oversupply of Renewable Diesel. 

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