ULSD And RBOB Took Out Another Layer Of Technical Resistance In Tuesday’s Session

So much for the sideways pattern. ULSD and RBOB took out another layer of technical resistance in Tuesday’s session, and made short work of following through to their next targets with 10 cent gains in the past 24 hours. Just a few days after making a run at $2.50, diesel prices are now less than a penny away from reaching a new 7 year high at $2.6080, with another big move higher looking possible if that resistance can also be taken out.  

Besides the technical strength, it appears that diesel prices are also getting a boost from winter storms hitting the East Coast, based on the strength in calendar spreads and natural gas prices in the past few days. That should provide some sense of relief to those hurt by high diesel prices that this won’t last for an extended period of time, but is also a sign that near prompt prices could see a severe spike if another polar vortex arrives, which could fulfill the technical targets closer to the $2.80 range. Short term indicators are also moving into overbought territory, so there should be a swift correction once this latest surge subsides.

So far the market continues to be able to shrug off some bearish fundamental indicators for both refined products as the API reported another huge build in gasoline inventories last week of nearly 11 million barrels, while distillates added another 3 million barrels. The DOE’s weekly report is due out at its normal time this morning, and based on the API and anecdotal evidence from fuel suppliers around the country, more large builds seem likely as last week marked the traditional trough of the winter demand doldrums. 

You can also see signs of that weak demand in Midwestern basis markets that have seen diffs plummet over the past two weeks as those regions slog through their annual January temperature and demand freeze.  In these cases, the strength we’re seeing in calendar spreads tends to push basis spreads even lower as cash markets will need to offset the relative increase in futures to attract incremental buyers. Rack markets around the country are also showing signs of capitulation with several major markets that were showing large premiums to their local spot market now offering discounts as suppliers appear to have forgotten (again) what happens in January every year. (see the charts below)

Reminder that Monday is MLK Jr. day, and while futures will trade throughout the day, there will not be a settlement posted for NYMEX contracts, and spot markets won’t be assessed, so most prices posted Friday night will carry through Tuesday.

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