Energy Futures Are Seeing A Modest Move Higher Tuesday After Mixed Results In Mondays Session

Energy futures are seeing a modest move higher Tuesday after mixed results in Mondays session. COVID in China, central bank action and Europe’s reaction to its energy crisis continue to be major market themes, but are having less impact on prices daily as traders turn their focus to last minute shopping and expiring PTO rather than last minute supply needs and expiring futures contracts.

From a technical perspective prices have moved into a more neutral ground, which may mean an extended period of choppy sideways trading. ULSD is probably the best example, trading about 30 cents above its December lows from 2 weeks ago, but 25 cents below the highs set last Thursday. That leaves a range of more than 50 cents/gallon for prices to swing without threatening a change in any trends. RBOB gasoline is in a similar neutral zone with a high of $2.25 or low of $2.00 needing to be taken out before a trend can form.

Diesel prices dropped sharply from their overnight highs Monday after European nations agreed to a price cap on natural gas, which some believe will make switching from gas to oil for electricity needs less likely near term. Others meanwhile think this price cap will prevent the continent from outbidding Asian countries for LNG shipments, which could actually lower supplies of natural gas, and runs the risk of needing more supplemental supply options during peak demand. At the very least this will become an interesting case study in economics and the law of unintended consequences when governments intervene in markets, and hopefully for those struggling to heat their homes it’s not much more than that.

The Freeport LNG facility was reportedly receiving gas shipments again for the first time in 4 months after a June fire forced most operations to close.  It’s unclear at this point whether that means one of the country’s largest LNG export facilities would be resuming full operations despite new hurdles put in place by the FERC earlier in the month, or if the plant was simply cranking up a power plant to help the Texas power grid deal with the deep freeze forecast for later in the week. 

Speaking of which, the refinery zones along the Gulf Coast are forecast to get temperatures well below freezing Thursday and Friday, along with wind gusts approaching 50 miles per hour, so there’s a good chance of power disruptions or other damage being done to facilities that aren’t used to dealing with the cold temperatures. A big unknown is how these facilities may have changed their operations to deal with just such an event after the 2021 freeze, which caused the biggest disruption in refining operations on record (see the chart below). It seems unlikely they’ll be caught by surprise this time around, and fortunately the forecast suggest these temps will only last a couple of days, which should help minimize the impact.

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