A draw down in inventories and reduced refinery runs sparked an impressive rally in the energy arena Wednesday, offering new hope to anyone hoping for higher prices that last week’s prices may have set a low for the year.
The decline in refinery runs is perhaps the most notable data point from the weekly report as the decline in inventories were all in line with seasonal expectations. Sure, crude oil inventories had their biggest weekly decline of the year, but as the chart below shows, inventories are still holding well above years past. The refinery runs were led by a sharp cut back in PADD 2, with several analysts suggesting this was due to a reduction in Canadian Syncrude output that is eliminating the economic advantage for Midwestern plants. What’s worth noting is that despite a drop of nearly 2% in refinery throughput last week, US Plants are still producing 10 million barrels/day of gasoline, nearly 1 million barrels per day more than we’re estimated to consume domestically.
Now that prices are rallying, here are some upside resistance levels to watch near term:
WTI has retraced nearly half of its $10 spring price decline since bottoming out last week, $48.75 would be the 50% retracement of that fall, and $49.93 is the 62% retracement – part of the Fibonacci sequence loved by many traders – which makes the $50 mark an important technical and psychological pivot point this summer.
RBOB gasoline had a bullish trend line put in place since futures reached 89 cents/gallon in early 2016. Last week marked only the 2nd time in more than a year that prices had traded below that line, which comes in around $1.56 today. If gasoline prices can get back above that trend support, we could easily see another 10 cents of upside near term. If not, that support may have just become resistance and perhaps a nail in the coffin of US gasoline prices for 2017.
ULSD prices have bounced more than a dime since bottoming out at $1.37 last week, and are currently testing the 14 day moving average after failing to breach $1.50 overnight. If the bulls can push through those levels there’s not much on the charts to prevent another 5-10 cents of upside.
A good read making the rounds this morning on why OPEC’s efforts may be in vain.