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Refined Products Are Leading The Charge Higher This Morning With 5.5 Cent Gains

Wednesday, Jan 26 2022
Market Talk

Up, up and away? Energy futures have staged a big rally off of Monday’s lows and several contracts are now within a few ticks of reaching fresh 7 year highs. Refined products are leading the charge higher this morning, with 5.5 cent gains putting ULSD just 16 points away from its highest trade since October 2014 and threatening another technical breakout to the upside.  Brent crude meanwhile is just a few ticks below the $90 mark, already reaching a fresh high for the year overnight.

Looking at the charts, if we see new highs set and held this week, there’s a strong case to be made for crude making a run at $100, and ULSD taking a shot at $3. Fundamentally, as long as OPEC and Friends are unable to meet their output quotas, the argument for that type of price spike continues to strengthen as well. 

The FED and Ukraine continue to be the big stories roiling markets, with US equities having more huge swings in Tuesday’s session, and starting out Wednesday pointing to healthy gains, while volatility is at its highest for stocks in over a year.

The FOMC will make their first monetary policy decision of what’s expected to be a very busy year for the FED.  The CME’s Fedwatch tool shows only a 5% probability of a rate hike today, but a 97% chance of an increase by March. In addition, the probability of 3 or more hikes by the end of the year has increased to 92%, from 65% a month ago as the FED has been foreshadowing a tougher stance on inflation.

The API reportedly estimated a small decline in crude oil stocks last week of less than 1 million barrels, while distillates drew down by 2.2 million barrels. Gasoline meanwhile continued its seasonal stock build with an increase of 2.4 million barrels, marking the 4th straight week of gains. The EIA report is due out at its normal time today, and if the seasonal trend holds we should continue to see gasoline stocks increasing for another few weeks before starting to draw down ahead of the spring RVP transition.  

How’s that plan working out? The DOE last week announced the 2nd largest award ever from the SPR as 7 companies raced to take advantage of the steeply backwardated price curve and gladly pay the government back in 2-3 years where they can lock in prices 20% or more lower than what they’re receiving today, which should easily cover the “interest” payable on those loans. Meanwhile, energy products continue to push multi-year highs despite the political theater of this coordinated SPR release that was supposed to help lower prices. 

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