Energy Futures Are Back On The March Higher To Start Friday’s Trading

Energy futures are back on the march higher to start Friday’s trading, and have now wiped out the heavy losses from earlier in the week. Gasoline futures are back on track for an 8th straight week of gains if the current levels hold today, while ULSD needs to add another penny to continue its winning streak.    

Plummeting COVID counts are providing plenty of demand optimism, while tensions around Ukraine keep supply shortages at the top of mind, and reality is starting to sink it that a nuclear deal with Iran, which would allow 1 million barrels/day or more of oil back onto the world market, is a long shot. 

The January CPI release Thursday sent shockwaves through markets around the world as US inflation reached a 40 year high and may keep volatility elevated near term. 

Before the CPI reading, the CME’s FedWatch was showing a 33% probability of a 50 point rate hike at the March FOMC meeting, and that spiked to 93% after the report as traders are now convinced that the FED must make its largest single increase since 2000 to try and get on top of runaway inflation. 

The report created some rollercoaster trading for energy futures, with refined products giving up their overnight gains in just a few minutes after the report, only to rally a nickel or more later in the morning, and then fall back again in the afternoon as the sell-off in equity markets started picking up steam. Over the past month, energy and equity markets have moved in opposite directions more often than not (see the correlation chart below) in large part due to concerns over Ukraine that could be bearish for stocks and bullish for energy, but there’s a good chance we could see the two move more in tandem as we did Thursday, whenever FED expectations take the lead.

If you’re not sure what’s a more confusing concept, crypto currency or carbon credits, you’ll find the cadre creating contracts that combines the two concerning. Carbon backed crypto contracts seem to be increasing faster than fuel prices, giving cons and criminals a whole new field (or rainforest) to express their creativity.

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