Once in a while the lightning hits right where it should.
Well, that was a fun six weeks. In case you were distracted with the Bruce Jenner saga, there’s been a U.S. Steelworkers Union strike that affected close to 20% of the U.S. refining system. Now that seems to be over: there’s a tentative deal between the refiners and the workers now and life is getting back to normal. The timing for the Union could not have been worse and I have to think that this agreement was pushed more by their side. The low oil price environment, the extended maintenance period this spring and advancing technology were all lined up against them. Add in the declining unemployment rate, fuel efficient cars and “right to work” becoming a lot more friendly in the U.S., and leverage was declining quickly. So, it’s over now and the knee jerk can commence.
We saw the market take a bit of a hit yesterday after the news, and a little more today. I was saved by the bell because I had been busy working on “right to work” refineries vs. union-affected ones. Basically you had the USGC (TX, LA, MS) unaffected, the East Coast (NY, NJ) and the West Coast (CA) under the gun and the Mid-west (IN/IL) split down the middle. If I were a "fancy bank guy," I would have spent most of my week putting together massive stats and pretty graphs and pictures, but I’m not. I get a pardon as the strike comes to an end and for the most part stays under the radar.
I know that most (including me) thought that this would have a big impact on the refined product market if the strike moved past the turnarounds, but I never thought that the opposite would happen. Alas, I and the teeming millions have to deal with bears who actually think the strike was getting priced in. So sad. Actually I think that the opposite is ready to happen. All of this fear over America’s oil storage is going to fade like a fart in the wind. The time is coming up quickly where refineries are going to jump back up and start running about another 1M b/d. We’re going to see demand that is already higher than last year for gasoline and diesel, take a leap of faith on warmer weather and more workers. Oil production is ready to give up the ghost of “EOR (enhanced oil re-covery)” as Bakken is seeing it’s first losses in production. The huge rig count drop is finally starting to rear its head. Put all that together with no signs of slowing the growing demand for refined products in America or abroad and we’re at the bottom here. From now on in, we’re going to be using every drop of fuel we make and
the barrels that we’re not keeping here, we’re going to ship right out. That will keep the country above the rest and put some real support into the market. The thing we should take note of is that dropping production in the Bakken and understand that OPEC has moved on from the US. We might just need our own negotiations.
Crude: Time to put that bearish feeling behind us like a bad case of indigestion. We’re moving on to the April contract now and already the charts are looking a lot better. We think this is a good a place as any to find a reversal. My only question from here is how far the move will take us until we stall once again. I think that we’re probably go-ing to have a banner month for the Bulls. That in mind, I’ll be looking to CLJ5 and re-sistance at 4810, 4966 and 5085. The support numbers come to hold 4612, 4559,
4470. The new front spread (JK) eyes resistance at –138, -111. Support to –162, -186. Friday is my buy day.
Gasoline: We’re moving along to the RBJ5 contract as cash trade moves forward. We’re looking to resistance 18024, 18235 an 18470. That will give us some room to look back down to support at 17866, 17649, 17480. The front spread moves to J5/K5. Resistance at +00, +52 Support to –44, -75. The RBCL moves to J15 and gets to resistance at 2860, 2902. Support down to 2810, 2754.
Distillate: The move is ahead and we switch months and ahead to the HOJ15 contract. We’re looking at support to 17570, 17345 and 17158. The resistance looks above to 17838, 18044 and 18234. The front spread is in J5/K5 with resistance at 134, 175. With the way it’s moving we may not see support tested, but looking to 70, 32. The HO crack in J15 sees resistance at 2775, 2822. Support back to 2708, 2666.