The Sigh Of Relief Rally Continues For A 2nd Day In Energy And Equity Markets

The sigh of relief rally continues for a 2nd day in energy and equity markets, and volatility indices are moving lower as the Omicron fears appear to be subsiding. With refined products trading more than 20 cents above the lows set last week, it’s easy to think that the bearish trend may be over, but there’s still more work to be done to break the downward sloping trend lines for both ULSD and RBOB. Likewise, while WTI has regained the $70 level, it will need to make a push above $77 if it’s going to avoid creating a head and shoulders pattern that could ultimately push prices to $50 or below in the next 6 months.    

One potential headwind for the petroleum rally: Natural Gas prices have plummeted as warmer weather forecasts bring expectations for lower heating demand this winter. After much of the rally in energy prices this summer and fall was fueled by natural gas and coal shortages in other parts of the world, suddenly the US looks like it may be long. Then again, as tensions with Russia escalate over the military buildup near the Ukraine, there’s a risk that natural gas may become the weapon of choice to combat sanctions, given Europe’s dependence on Russian imports. 

The selloff in RINs slowed Monday, but values for D6 ethanol RINs did dip below 90 cents, marking the lowest trade levels since January. Ethanol prices look like they’ve started their inevitable collapse with Chicago spot values down 70 cents since Thanksgiving, and other regional markets showing signs that they aren’t far behind. Then again, transportation headaches continue, with dredging along the Mississippi interfering with barge traffic, and delaying ethanol deliveries to some gulf coast markets. 

A WSJ Article this morning notes that vehicle traffic in the US is rising, but remains below 2019 levels as the work from home wave helps keep cars off the road. 

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