It’s Been A Choppy Trading Session For Energy Futures With Overnight Gains Turning Into Morning Losses

It’s been a choppy trading session for energy futures with overnight gains turning into morning losses, and signs of a potential market top flashing even as new records are being set.   RBOB gasoline futures and several US spot markets set fresh records on Monday, meaning new record highs for retail prices are coming. While that’s bad news for consumers, and will no doubt continue to dominate headlines near term, there’s a divergence with diesel prices that could be bringing relief. 

Monday was a relatively quiet session for NYH ULSD futures, which traded down less than 1.5 cents, but a big day for NYH diesel spot markets that dropped more than 56 cents on the day.  A big drop in NYH was inevitable as those values were trading $1/gallon or more than any other US region, and typically once a bubble like that bursts it’s a one way trip lower so don’t be surprised to see more downside now that sellers have emerged.  

Just as the backwardation in ULSD, and the spread to NYH, have started their return trip to reality, gasoline spreads have decided to smash records. The Prompt month futures spread for RBOB reached its highest level since the wake of Hurricane Harvey yesterday, and is actually more impressive given that this backwardation doesn’t include the winter RVP discount like that one did. Even more impressive, June RBOB futures are trading $1.15 above January, which is roughly 60 cents higher than the record prior to this year.

The premium for barrels in NYH has sent values for shipping product along Colonial to their highest levels of the year, although as we saw with diesel prices the past couple of months, the backwardation in the market makes this a challenge. The difference between gasoline and diesel however is that the export bid for gasoline is not nearly as strong, so sending barrels north on Colonial seems to make the most sense for those with space. 

With supply options in the slim to none category globally the major question is how soon will the record high prices start hitting fuel demand? Rising fuel prices are already being cited as a headwind in Wall Street earnings reports, and we’ll have to wait and see if main street reacts with staycations this summer, or if they’ll pay up to get out after 2 years of travel disruptions.

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