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Rally Outkicking Its Coverage?

Friday, May 8 2020
Market Talk

Its a quiet start to end another strong week for energy prices that saw the forward curve continue to shrink rapidly as demand picks back up and the storage concerns start to ease (see the charts below).

The path forward is less clear however as some choppy action to end the week leaves traders debating whether the rally has out-kicked its coverage, or if the reopening spurring demand could mean worse news later in the year.

From a technical perspective, the pause in the recovery rally for WTI and ULSD looks like it could be forming a pennant or flag pattern on the daily charts. That pattern is known as a continuation pattern meaning prices should exit in the same direction as they entered, meaning we could see another 20 - 25 cents of upside for refined products later in May should they be able to punch through the highs set earlier this week.

Equity markets continue to show more signs of optimism, rallying again overnight on signals that China and the U.S. could actually agree on something in this case new steps forward in their trade agreement.

As demand for gasoline picks back up across most states, were seeing pockets where the supply network is having a hard time keeping pace, pushing basis values higher and creating some limited allocation issues at the rack. Those issues are not widespread, but highlights the challenges facing refiners and shippers as America returns to business.

The April jobs report smashed all previous records with employment in the U.S. dropping by 20.5 million, which increased the headline unemployment rate to 14.7 percent, and the U-6 unemployment rate to 22.8 percent. Energy futures ticked up in the wake of that report, because amazingly enough it was better than many forecasts, but quickly gave back those gains.

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