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Energy Prices Are Moving Modestly Higher To Start The Week As Equities Try To Find A Bottom After Another Brutal Week Of Selling

Monday, May 23 2022
Market Talk

Energy prices are moving modestly higher to start the week, as equities try to find a bottom after another brutal week of selling, and the world continues to wonder what is worse between a shortage of supply, or the shortage in demand it will eventually bring.  

In the bullish column this morning, Shanghai is in the process of reopening after a multi-month lockdown, and Russia cut off natural gas flows to Finland. Unlike most of Europe, Finland has other options to replace those Russian supplies, which probably goes a long way to explaining the muted reaction to that latest move in the global energy chess match.

Money managers added new longs, and covered old shorts last week, pushing their net length to the highest levels since February. That said, the net length held by the large speculators remains well below the past several years as the big funds seem either afraid of, or prohibited by their risk management departments from, making large wagers on energy prices. 

Refined product open interest ticked higher off of multi-year lows for another week as a return to more tolerable volatility seems to be encouraging some flows back into the ULSD contract. WTI meanwhile saw its OI drop to a new 4.5 year low as volatility and competing products both seem to be taking a toll on the NYMEX contract, especially given the focus on waterborne crude oil this year. 

Maybe they went on Spring Break? After a month of holding near unchanged, Texas led a big jump in active drilling rigs last week, adding 8 rigs in the Permian basin, and accounting for 12 of the 13 new rigs put to work according to Baker Hughes’ weekly count. If the recent 3 week average of 9 rigs/week holds, we could see the rig count reach pre-pandemic levels by the fall. A pair of Rystad energy reports last week suggest it will take 5 years for employment in the oil and gas sector to reach pre-pandemic levels, even as parts of the Permian are on pace to reach record output later this year.  

The EIA this morning highlighted retail diesel prices in New England, which surged north of $6 last week. Now that the NYH diesel bubble finally popped and wholesale prices dropped more than $1/gallon last week relief is on the way for consumers, and retailers will enjoy some incredible margins on the way down. It’s also worth noting that even though NYH spots were trading more than $1 above California levels during the price spike, retail prices along the East Coast were still trading below those on the West Coast.

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

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