Cold Front Sweeping The Country Is Offering A Harsh Reminder That Winter Is Coming Quickly

Diesel prices are once again trying to lead the energy complex higher to start the week, as a cold front sweeping the country is offering a harsh reminder that winter is coming quickly, and large parts of the world don’t have enough supply to ensure the heat and lights will stay on.

The US East Coast and Western Europe continue to outbid each other for natural gas and diesel supplies heading towards winter, with power grids on both sides of the pond facing the risk of blackouts as electricity supplies run short. Those shortages have already reached a new low in France as nearly 1/3 of the nation’s retail fuel stations have reportedly run dry as refinery strikes continue at exactly the wrong time.    

Making matters worse, China has stopped allowing LNG sales to foreign buyers to protect its own stockpiles ahead of the winter, which had been one of the few new supply options for European buyers. 

Baker Hughes reported an increase of 8 oil rigs last week, bringing the US total to a 2.5 year high of 610 active oil rigs after the rig activity had gone nowhere for nearly 3 months.  Natural gas rigs declined by 1 on the week as US producers continue to be limited by LNG export capacity, and to a lesser extent the FERC rule changes in February that made new natural gas pipelines essentially impossible to build.

Money managers continued to jump on the energy bandwagon last week, increasing long positions and covering shorts in all of the major crude and diesel contracts. RBOB was the outlier as it seems the funds are acknowledging that winter may be very bullish for some energy products, but it is usually the opposite for gasoline.

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