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Signs of a Bottom? Markets Find Some Support as we Wait for Concrete Demand Data

Updated: Feb 23, 2020

In an abbreviated report this week, we take a quick look at outright prices and spreads that attempted to hold support levels last week.

The dramatic selloff in not only oil prices but also calendar spreads has been the overriding trend since the start of 2020 as the market quickly tried to adjust from one worried about supply disruptions to one that is worried about loss of demand.

The first area where we saw some signs of stabilization was in 1-month calendar spreads:

While the front 4-month calendar spreads remain weak and in contango, the balance of the year spreads either held, or moved back above the zero level.

And it's in those longer-dated term spreads and outright prices that we see the crude markets we have come to know and love take the first steps to return to their old ways - as outright prices moved higher, spreads strengthened. Most notably in the first half of 2021 vs the second half of 2021.

Last week both the 2021 spread and outright prices hit their lowest levels for only the third time in the last 12 months, with the calendar spread rejecting a move in to contango and bouncing more than $0.50 off of the zero level.

In addition, flat prices for the balance of 2020 through 2023 rejected a move below $50 with the largest recovery seen in the front of the market (green line).

For the 4th time in the last 12 months, term spreads (bal cal 2020/2021 & 2021/2022) dipped below the zero line, but as before quickly recovered. The concern going forward is whether or not the market is simply treading water until it receives more concrete data regarding demand loss due to the virus in China or has found some real legs to stand on.

In all fairness, the most significant pressure on oil prices this year has stemmed from the dramatic selloff in ULSD prices. As a matter of fact, for the first time in recent history, summer HO/WTI cracks have fallen below summer RB/WTI cracks.

2019 summer cracks maintained the pattern of ULSD spread premiums to RB cracks, and looking forward, the same pattern exists between summer 2021 cracks. It's only the 2020 summer season where gasoline cracks have moved to a slight premium over distillate.

Can the gasoline markets lead the rest of the complex higher or do we need to see distillate markets regain control before we can trust that the markets are truly bottoming??


The EIA inventory report for week ending February 7, 2020 reported a Total inventory BUILD of 7.40 million barrels with Crude oil making up the bulk of last week's build.

As a result, here is where inventory levels stand relative to prior years:


Lee Taylor - Technical Levels


Resistance: 58.27 / 60.21

Support: 56.60

The Brent market didn’t quite meet our objective of 50.22 or even 52.00 but did bottom out at 53.16. Support now comes in at 56.60 and resistance 58.27 then 60.21 basis the daily charts. Resistance will be major above as 60.24 is the first resistance level on the weekly charts. We truly need to keep an eye on RSI levels as they have been key indicators of the energy markets bottoming or topping. Put them on your charts – either daily or weekly and look back on our moves. Look for April/May to test .26 then .41 with support at .12 then flat.


Resistance: 52.80 / 55.47-55.62

Support: 49.22/47.00

Another week goes by and the coronavirus is still the major fundamental story affecting most commodity markets and stock indexes. The market held for the second consecutive week the major weekly support level basis March WTI of 49.22 – the high from the last week in December of 2018. If the market breaches that level, then we will be looking for 47.00. Resistance is 52.80 on the weekly charts. Whether one looks at a weekly or daily chart, the spot month of wti needs to break 55.47-55.62 to give traders any hope of sustaining a bullish rally. It appears that both March/April and April/May wti have bottomed but resistance lies above at the teens. June/Dec was able to break through our support level of .52 but didn’t have the follow through on flat price. It created a double bottom and rallied all the way back to +.26. We do expect this spread to now test +.64.


Resistance: 1.6258 / 1.6747

Support: 1.5439 / 1.5231

March rbob continued to be the major force in the energy marketplace. Look for March rbob to test 1.6258 above then 1.6747. Support below can be found at 1.5439 then 1.5231 and 1.5023. Although HJ rbob took many people by surprise including me, it reached one of our technical numbers above at -1341. We still believe that we will see -1271 and many people out there are holding out for single digits. The rest of the spreads have had a difficult time gaining any traction. April/May will remain stuck between 16 to 66 for the time being.


Resistance: 1.7442

Support: 1.6536

The heating oil market rebounded avoiding an encounter with 1.4666. Last week’s rally will allow the market to stabilize and retest the 1.7442 level above. Support is 1.6536 on the weekly charts. Look for March/April to hold the 48 level this week and test 77. It will have to break through 55-59 resistance before, but we feel confident that it will. Look at March/June heating oil. Support is found at 64 with a move up to 148 looking more likely.

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