Energy Futures Are Pulling Back For A 2nd Day, With RBOB Gasoline Futures Taking The Lead Dropping Nearly A Nickel Overnight

Energy futures are pulling back for a 2nd day, with RBOB gasoline futures taking the lead dropping nearly a nickel overnight, before bouncing modestly just before 8am, while ULSD futures saw 2.5 cent losses overnight wiped out around 7:45.

Backwardation remains the theme across the energy complex as shipping disruptions and bottlenecks keep a bid for prompt supplies, even though total inventories remain ample in most markets with demand still struggling to shed the winter doldrums.

China set its official growth policy at 5% during its fake congress this week but acknowledged that target would be a challenge given numerous economic and social headwinds.

A new level of asymmetric warfare: While the attacks on ships have quieted down over the past few days, 4 major telecom network cables in the Red Sea have been cut, disrupting internet traffic across Europe, Asia and the Middle East.

WTI failed its first test to break above the $80-mark last week, but weekly charts suggest there’s still a good chance we’ll see another attempt as long as prices can hold above the $76 range. The most reliable short term indicator for daily price movements in WTI has been the 5 year Treasury Bond/TIPs spread which is a proxy for inflation expectations. That spread had rallied from 2% to 2.4% so far this year, aiding the rally in crude oil prices as many investors use crude as an inflation hedge, and now that WTI is pulling back, the strength of that relationship will get a good test.

The EIA this morning took a closer look at improving well productivity that drove US oil production to the highest level of any country ever last year, despite a sharp decline in drilling activity. That efficiency has far-reaching consequences from OPEC & Russia needing to cut production to prop up prices, to an excess of Natural Gas supplies that is pushed Henry Hub prices to a record low in February.

The P66 Wood River refinery near St. Louis reported a unit upset over the weekend, but that event didn’t appear to have much if any impact on Chicago or Group 3 spot market pricing Monday. Both markets have recovered sharply after a brutal few months where 40-50 cent discounts for refined products became the norm, which forced multiple refiners to cut rates for economic and containment reasons and the early spring should help boost planting demand sooner rather than later.

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