The rally in energy prices stalled out Wednesday after the DOE’s weekly inventory report failed to live up to the hype created by the API’s report the day before. Brent crude and ULSD futures both formed an outside down reversal bar on the daily charts, which is a classic trend reversal starter that has been the hallmark of several pullbacks this year. WTI and RBOB futures do not have the bearish outlook as their counterparts on the technical front, so it will be interesting to see if they can resist the pull lower. If we see follow-through selling to end the week, charts suggest there’s a good chance we could see another 5-10% price drop in November.
The biggest story from the DOE report was that US crude and diesel exports both reached new all-time highs last week. While inventories declined, the moves paled in comparison to the API report, so after the obligatory knee-jerk reaction in the minutes following the report, the sellers stepped in to push most contracts lower on the day.
ULSD futures have dropped by more than a nickel since Tuesday morning – in spite of the record export figures – as demand appears to be slumping based on the EIA estimates, while diesel production at refineries has surged in recent weeks and is well above the 5-year seasonal range. Gasoline demand meanwhile is above its seasonal 5 year range which is keeping RBOB strong relative to ULSD, but gasoline production continues to hold above 10 million barrels/day and outpace domestic consumption.
Chicago gasoline prices continued to be the most not-worthy spot market in the country Wednesday, surpassing the highest prices levels set in the wake of Hurricane Harvey. Explorer pipeline announced late Wednesday afternoon that repairs were expected to be completed overnight and operations resumed this morning. The squeeze on Chicago gasoline could last another couple of days as first cycle November material is scarce, but when the bubble bursts we are likely to see prices drop 20-30 cents in short order.