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Petroleum Futures Are Set For Their Largest Weekly Gains Since August

Friday, Dec 10 2021
Market Talk

Petroleum futures are set for their largest weekly gains since August, as prices move higher again to start Friday’s session after a modest reversal Thursday slide lower. Assuming there isn’t a major reversal later today, this week’s action would snap a 7 week losing streak for refined products, and move them out of the bear market territory they entered to start the month. 

There is still more work to be done to break the downward sloping trend-lines which should create a pivotal test to end the week. Both RBOB and ULSD are just a penny or two away from breaking those trends that knocked 50-60 cents off of prices since peaking in October, but if they fail to sustain their momentum, there’s a strong case to be made that we could see another wave of selling soon.

Regional markets are already seeing some major moves lower this week despite the rally in futures, particularly in the case of diesel, where tight supplies in the Southwestern US and Ohio Valley are healing quickly as refineries come back online and pipeline schedules get back closer to normal. 

Bye bye Backwardation?  The forward curve charts below show the dramatic flattening of the futures price curves over the past month as the supply crunch has eased across most markets.  Also note that the rally over the past week has been fairly steady over the next 3 years, which is consistent with the move higher in equity markets as Omicron fears are put on the back burner.

RGGI credits jumped to a record high this week, joining a strong rally in several credit markets, only to plummet Thursday after Virginia’s governor signaled his intent to pull the state out of the regional cap & trade program. We also recently saw Connecticut and Massachusetts pull back from the New England Transportation Climate Initiative program, as high energy prices prove to be a powerful political motivator. 

Speaking of which, the Consumer Price Index for November was released this morning, and the annual inflation index reached its highest annual level in nearly 40 years at 6.8%. Energy prices ticked higher immediately following that report, which apparently makes sense since energy price gains account for much of that inflation. The inflation reading excluding food and energy was at 4.9%, which is “only” the highest since 2008.  For those that remember 2008, or 1982, you can see why these inflation figures are troubling to many.    

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