A strong finish to October and an even stronger start to November has placed the momentum in energy markets clearly back in the bulls’ corner.  An early sell-off Tuesday was unable to sustain itself, and then buyers stepped into high gear after a bullish API report.

The industry group was said to show a 5 million barrel draw in US crude oil stocks – a figure several analysts had predicted due to record export activity – and a decline of 7.7 million barrels in gasoline and 3.1 million barrels in diesel that seems to catch everyone off-guard.  The large product draws suggest export activity must be strong across all parts of the barrel as even the most lofty of domestic demand estimates wouldn’t come close to reaching those levels, even though unseasonably warm weather across much of the country in October likely helped push off the annual winter slump by a few more weeks.

Brent crude and ULSD futures reached a fresh 2-year high overnight at $61.70, while WTI moved north of $55 for the first time since the first trading day of 2017.  Anyone looking for a reason to be cautious in the face of the recent strength can point to that January 3rd high trade of $55.24 (just 2 cents above where WTI peaked overnight) and remember that by the end of that day prices were $2/barrel lower, and in a week they’d drop by $5/barrel.

RBOB futures also reached levels we haven’t seen in 2 years, outside of the Hurricane Harvey spike, which especially impressive given that winter grade products are trading well above where summer grade products peaked out.

A pair of refinery fires in the past two days have also kept the sellers at bay.  Yesterday there was news of an explosion and fire at Marathon’s Texas city refinery and this morning news broke that ExxonMobil’s plan in Baton Rouge was fighting a fire.  Neither event appears to have spread to other operating units which should help limit the price reaction.

Chicago is earning its reputation as one of the country’s most volatile spot markets this week, with gasoline prices spiking to nearly 40 cents over NYMEX futures, and surpassing the spike we saw on the gulf coast after Harvey shut down nearly ¼ of the country’s entire refining capacity.  Refinery maintenance had the Midwest on the lean side for inventories so when the Explorer pipeline shutdown for unplanned repairs prices exploded.  Given that the pipeline is expected to come back online soon, and neighboring spot markets are trading 25-30 cents cheaper, encouraging resupply from a variety of alternate locations, it’s likely we’ll see Chicago gasoline prices come back to reality in the next several days.

The EIA’s weekly status report will be out at 9:30 central and the FED Announcement will be out at 1pm.  The CME’s FedWatch tool shows that traders are giving only a 1.5% chance of an interest rate hike at this meeting, compared to a 98% chance that rates will be raised again in December.  The real story this week remains the expected of a new FED chair tomorrow.

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