Another One Bites The Dust: Gunvor Announced Friday It Would Be Temporarily Halting Production

It’s a quiet start to the Thanksgiving week for energy markets with refined products trading inside of penny changes in either direction so far, and crude oil prices hovering just below break even. Equity markets are pointing higher to start the week after a long-time hedge fund manager was nominated for Treasury Secretary, with hopes that he’ll reduce the likelihood of a tariff shock under the incoming administration.

Another one bites the dust: Gunvor announced Friday it would be temporarily halting production at its 75mb/day refinery in the Netherlands due to weak economics as newer and larger facilities come online in Africa and the Middle East.

While refiners still are facing a glut of capacity, natural gas prices in the US and Europe are trading at their highest levels in a year as the potential for another shortage in European supplies sinks in. Increasing capacity for US exports of LNG in 2025 should help to ease some of the concerns about shortages elsewhere in the world, but an upset at Freeport’s LNG liquefaction plant Friday is a reminder of the concentration risk with just a handful of facilities capable of processing natural gas for export. So far, this rally in natural gas prices hasn’t spilled over into the diesel market like it did in 2022, but the repositioning of hedge funds from short to long in European Gasoil contracts suggests that could still be coming.

Money managers added another 30k contracts of net length in gasoil contracts (European ULSD equivalent) last week through a combination of short covering and new bets on higher prices. Brent crude also saw large speculators add more than 30,000 contracts of net length last week, although since there’s 3X as much open interest in the oil contract vs the European diesel contract, that move is not nearly as big of a deal. Funds were less optimistic on US contracts with WTI and ULSD both seeing reductions in length held by money managers, while RBOB contracts saw modest gains.

There are just 5 days left in the 2024 Atlantic Hurricane season, and the NHC is forecasting no tropical activity for the next week. It was a highly unusual season that ended up with multiple major storms hitting the US, although the traditional seasonal peak in early September was unusually quiet. Energy infrastructure was largely unscathed despite several close calls.

Baker Hughes reported a net increase of 1 oil rig drilling in the US last week, while the Natural Gas rig count dropped by 2. The rig count in the Permian basin, which makes up the majority of all drilling activity in the country, was unchanged on the week.