Just when it looked like stock markets were done with their temper tantrum and energy prices were going to bounce, the DOE reported a surge in both crude production and refinery runs last week that sparked the heaviest selling we’ve seen in nearly 2 months. The bullish trend-lines that have held up prices in some cases for 7 weeks and in others for 7 months are all breaking down, leaving the energy complex in “Rally or else” mode for the rest of the week.
About 30 minutes before the DOE report was released Wednesday, the energy complex had wiped out its overnight losses following news that INEOS was forced to shut the Forties pipeline again. That line shutdown helped propel prices sharply higher back in December when it was down for 2 weeks, and it looked like that pattern was about to repeat itself. Then, the DOE report came out and prices started selling off again, and when news broke that INEOS would restart the pipeline overnight, there was nothing left to stop the downward momentum.
Since the 10 million barrel/day crude oil production figure has been forecast repeatedly by numerous agencies, it doesn’t seem as likely that it was the cause of the selloff as much as the unexpected and counter-seasonal spike in refinery runs. The outlook for refiners was that February would see an extremely busy maintenance season as plants caught up on work deferred in the wake of the hurricanes last fall. Instead, US refiners are cranking out 1 million barrels/day more this February than they were this time last year, and last year set an all-time record.
WTI is currently testing the 50 day Moving Average at $61. If that breaks there’s not much on the charts until prices fall into the $58 range, and the 200 day moving average doesn’t come into play until $52. ULSD barely even paused as it broke through what was thought to be support in the $1.96 range yesterday, trading all the way down to $1.91 overnight, setting up a new target of $1.85. Gasoline prices also look to have another 10 cents of downside, although we’ll need to see February RBOB settle below $1.76 this week to set up that move.