The Energy Complex Is In A Technical Breakout To The Upside This Morning With Crude and Refined Product Contracts Up 3-4 Percent Overnight

The energy complex is in a technical breakout to the upside this morning with crude and refined product contracts up 3-4 percent overnight, reaching multi-month highs in the process.

Diesel prices are once again leading the charge, with February ULSD futures up more than a dime this morning, trading above $2.48 for the first time since July after prices settled above their 200 day moving average for the first time in nearly a year yesterday. Unlike the earlier more timid rallies this year, this move can’t be pinned on the weather as the forward contracts are also seeing strong buying.

Expectations for new sanctions on Russia and possibly Iran as a “farewell gift” from the outgoing administration in the US is getting the headline blame for the early move. While both countries have become adept at dodging US restrictions, a recent announcement that one of China’s largest ports would reject sanctioned vessels seems to have traders on edge that the shadow fleet may have more trouble finding a home for its fuel.

Kinder Morgan’s product lines running east from Los Angeles remain shut due to precautionary power outages aimed at preventing more fires, but reports suggest the line running to Las Vegas will be restarted today, and the Phoenix line is expected to restart this weekend. LA-area refineries continue to operate normally so far.

A Reuters article Thursday suggests the outgoing administration is choosing to punt the political football known as the Clean Fuel Producer’s Credit, offering only short-term guidance on how the new program will work, leaving the final decision to the incoming group, and leaving the industry in limbo once again. RIN prices have been rallying modestly so far in January, trading in the low to mid 60 cent range, while LCFS and CCA credit values have dropped in recent days.

US stock indices moved sharply lower after a strong December payroll report that estimated 256,000 jobs added during the month, roughly 100,000 more than several published estimates, while prior month adjustments were minimal. The headline unemployment rate dropped by a tenth of a percent to 4.1% in December, while the less-manipulated U-6 rate dropped two tenths to 7.5%. Equity traders continue to act as though good news for the economy is bad news for stocks as it will give the FED an excuse to slow their rate of interest rate reductions, while energy prices seemed to ignore the report completely.