Chances Of Stimulus Package Points Equity Markets Higher
It’s a quiet start to the week, with most energy markets moving slightly lower on the day. The sideways trading patterns are still intact for most petroleum futures, with longer term charts favoring more downside this winter. Equity markets are pointed higher to start the week, with credit being given to increasing chances of a stimulus package being forced through congress this week.
China’s refinery runs dipped in September, but remained higher than a year ago and are close to the all-time highs set this summer. That sounds bullish on its own, but inventories are also rising, suggesting that supply is outkicking its coverage from the demand recovery, and will put downward pressure on product prices in the months to come. European refiners are getting squeezed by the increase in Asian refinery capacity, and their own climate laws that are forcing more plants out of business. Something to watch near term is if Brexit negotiations mean more gasoline from the UK will be forced to go to the U.S. to avoid tariffs from the EU.
Money managers trimmed their net length in WTI and RBOB contracts last week, but while adding some small positions in Brent and ULSD. Enthusiasm continues to be lacking in the money flows to energy contracts, as the outstanding positions for most categories of trader are much smaller than they’ve been in years past.
After 10 years, the CFTC finally passed a rule (which was required as part of the Dodd Frank regulations passed after the financial crisis) placing position limits on speculative positions in a variety of contracts in the energy, agriculture and metal markets. It’s no surprise that something that took a decade to agree on would be controversial, and reading the dissenting opinions of CFTC commissioners sheds light on the potential loopholes in the rule. With open interest already on the decline as the funds who tried to convince retail investors that oil futures were a safe investment are now limping towards the exits, it looks unlikely that we’ll notice anything different following the passing of the new rule.
Baker Hughes reported 12 more oil rigs were put to work last week, a fourth straight weekly increase, and the largest since January. The interesting part of the increase this week is that Utah and Wyoming – which had just one active oil rig between them last week – saw five new rigs put to work. It’s much less surprising that Texas had seven rigs added, although none of them were in the Permian.
Epsilon is expected to be named as a storm in the next day or two, with the NHC giving the system 100% odds of further development today. The storm is expected to stay offshore as it heads north past Bermuda, and should not approach the U.S. Coast, although some delays for vessel traffic along the East Coast could occur due to strong winds and some coastal flooding potential. The system in the Caribbean is still given just 20% odds of development.
A federal court ruled Friday that a default had occurred on PDVSA’s long-contested bonds, which were deemed valid and enforceable by the decision. That decision could ultimately force a sale of Citgo, which was used as collateral for the bonds, but the U.S. refinery is still protected by the U.S. treasury sanctions on Venezuela, at least through January.
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Energy Markets Are Holding Steady To Start Tuesday’s Session
Energy Futures Rebound to Start the Week
Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR
FOMC Rate Increase Rocks Equity Markets, Energy Futures Unshaken
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Energy Markets Are Holding Steady To Start Tuesday’s Session
Energy markets are holding steady to start Tuesday’s session after oil prices had their biggest rally of the year Monday.
Reports that Iraq had halted shipments on the Ceyhan pipeline through Turkey, which removed 400,000 barrels/day of exports from the world market temporarily were given much of the credit for the big move higher. The rally in oil came just a week after large speculators reduced their bets on higher prices to the lowest level in 7 years, providing yet another reminder of why the moves made by hedge funds is often seen as a contrary indicator of market direction.
Refined products touched a 2-week high overnight before pulling back to modest losses this morning but remain in the middle of their March trading range, which sets the stage for more choppy back and forth action as markets around the world search for direction and worry about what’s coming next.
California approved the bill that will create a new committee within the state’s energy commission that will oversee oil refiners and potentially levy penalties on them if they’re deemed to be making too much money on consumers. The state has already had a handful of refineries close down in the past 6 years, with another scheduled to close and convert to an RD facility in early 2024, and there’s no doubt that this new law may be yet another reason for the remaining facilities to consider closing their doors as well, which many will see as a victory.
The Dallas FED’s manufacturing Survey showed a small increase in production in March, after February showed a contraction for the first time since the COVID lockdowns. The business outlook remains mixed however as many noted uncertainties around the banking situation, along with continued supply chain and labor challenges as factors hindering growth.
New competitor for feedstocks? A moose breached the security gates at the refinery in Sinclair Wyoming Monday. No word if the animal was just lost, or searching for the soybeans that are now being used to make renewable diesel at that facility.
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Energy Futures Rebound to Start the Week
Energy futures are bouncing to start the week, following through on a recovery rally that saw Friday’s early losses wiped out and salvaged weekly gains.
Money managers have been bailing out of their bets on higher energy prices in recent weeks, and as the CFTC’s data is finally catching up after 2 months of delays, we can finally see those figures the same week they’re compiled. The past two weeks alone have seen a reduction of more than 100,000 WTI contracts held by large speculators, bringing the total net length to the lowest level since January 2016.
The COT data also shows large reductions in producer hedging during this latest selloff in a sign that the industry may believe that prices won’t stay this low for long.
A WSJ article over the weekend highlighted how the options traders may have exacerbated the push lower over the past two months and could help spark a recovery rally later in the year.
Baker Hughes reported an increase of 4 oil rigs drilling in the US last week, snapping a 5-week slide that had pushed drilling activity to a 9-month low. The Permian basin accounted for 3 of the 4 rigs added last week.
Iraq won a 9-year lawsuit against Kurdish oil shipments, and that result has temporarily halted shipments of oil from the autonomous Kurdish region via the Turkish Ceyhan pipeline system.
Saudi Arabia announced an expansion of its partnership with China, increasing its multi-billion investment in new refining infrastructure in the world’s largest oil buyer. We’ve already seen multiple new refinery projects come online in both countries over the past two years, and this new agreement will continue the trend of additional capacity in the eastern hemisphere while the west continues to see declines.
Click here to download a PDF of today's TACenergy Market Talk.
Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR
Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday.
Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day.
The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve. That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.
Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.
As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel. Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.
The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.
Click here to download a PDF of today's TACenergy Market Talk.