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Energy And Equity Markets Are Both Seeing Losses To Start The Week

Monday, Sep 19 2022
Market Talk

Energy and equity markets are both seeing losses to start the week as fears of a global economic slowdown seem to be weighing heavily on markets around the world. Refined products are trading near multi-month lows, and threatening a technical breakdown that could see another big price slide unless buyers step in soon.  

The US dollar is rallying this morning, approaching the 20-year high it set earlier in the month ahead of several central bank meetings this week, which is putting downward pressure on several commodities. According to the CME’s Fedwatch tool, traders are giving 80% odds the US FED will announce a 75 point rate increase this week, and a 20% chance of a 100 point hike. Those bets have changed dramatically over the past week, and the past month, as inflation reports came in worse than many expected, convincing some traders that the only way to stop inflation is to induce a recession

Hurricane Fiona is expected to become a major storm later this week, after running over Puerto Rico and the Dominican Republic. The storm only appears to be targeting defunct refineries having passed near the bankrupt Limetree Bay FKA Hovensa refinery this weekend, and now taking aim at the Come by Chance facility in Newfoundland that is attempting to convert to renewables production, and already facing serious challenges in doing so. 

Money managers continue to act cautiously towards energy contracts, with open interest holding near 5-7 year lows. The large speculative category of traders made small increases in crude oil net length last week, but cut their length in refined products, keeping their total holdings well below the average levels we’ve seen over the past 5 years. 

Baker Hughes reported an increase of 8 oil rigs active in the US last week, snapping a 2 week decline that lowered the US total by 14. Natural gas rigs dropped by 4, wiping out last week’s gain. A WSJ article this morning highlights private drillers nearing their capacity, which helps explain some of why the rig counts seem to have plateaued recently.

The DOE’s leader met with the governors from North Eastern US states last week to discuss concerns over shortages of refined fuel and LNG supply ahead of the winter heating season.  Options on the table appear to be a release of the regional gasoline and heating oil reserves, or waivers on the Jones Act. The energy secretary acknowledged “concern about the low levels of privately held refined product inventories in New England” but did not make any proposals yet on how to deal with the situation.  

Click here to download a PDF of today's TACenergy Market Talk.

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