"REVERSAL THURSDAY" Price Action Not Uncommon For Markets

Energy futures are pulling back to start Thursday’s trading after a strong rally that added nearly 50 cents to ULSD and 20 to RBOB in just 3 days. This type of “Reversal Thursday” price action is not uncommon for our markets but has added influence this week from some big swings in equity and currency markets as the FED and other central banks move through their latest round of rate hikes.

The FED announced a 50-point rate hike Wednesday, bringing US interest rates to their highest levels in 15 years, and signaling, while the pace may slow, they are not done with the increases. 

The CME’s FedWatch tool now shows 71% odds of the rate increase at the next meeting dropping to 25 points, vs just 44% of that lower increase a week ago. That expectation for lower rate hikes seems to contradict the negative reaction in equity markets that continue to act insulted every time the FED Chair gives them an “I told you so” in his press conference. 

It’s worth noting that roughly 1/3 of the bets on FED fund futures are on interest rates being lower 1 year from today than they are right now, even though the FED has made it clear they’re not done raising rates, which is another indicator of the bets being placed on a 2023 recession that will force the FOMC to start easing. 

Part of the Keystone pipeline was restarted yesterday, as crews continue to work on repairing the damaged parts of the line that caused the largest oil spill in a decade last week. While the damaged section of the line has no timeline for restarting, the movements on other sections will help ease supply concerns for Midwestern refiners, while the Gulf Coast refiners still cut off from the line seem to have plenty of other options for now.

US refiners tapped the brakes last week, cutting run rates by several percent in 4 out of 5 PADDS after their unseasonably strong output drove a dramatic recovery in inventory levels over the past month, and had many concerned about containment issues this winter as demand dwindled. International buyers still appear eager even as domestic consumption of refined products remains well below average levels for this time of year. US Gasoline exports jumped to their highest levels of the year, and distillates rallied to a 10-week high, with the total amount of refined products moving overseas totaling more than 1.9 billion gallons last week.

Ethanol inventories surged to an 8-month high last week, which has helped push prices to their lowest levels since February. That’s a pretty dramatic change for a product so many were afraid would be in short supply due to the potential rail strike just a couple of weeks ago.

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