Diesel Prices Attempting A Rally, While Gasoline And Crude Prices Are Moving Modestly Lower

It’s a mixed bag for energy markets to start the week with diesel prices attempting a rally, while gasoline and crude prices are moving modestly lower. There appears to be a bit of a technical tug-of-war happening at the moment after last week’s strong rally that quickly took out the near term targets on the charts. 

There’s a similar fundamental dichotomy as disruptions to global oil exports give the bulls reason to cheer, while Omicron continues to shake up the demand outlook near term. In the US there’s a mismatch between a dramatic drop in demand over the past couple of weeks, offset by a rash of refinery problems, mainly focused on the gulf coast, and PNW markets.  On the demand side, the recent rally seems to suggest that both the global impact from Omicron, and the US slowdown are seen as temporary issues, and on the supply side we will just have to wait and see how long they might last. 

Money Managers are piling back into the energy arena, with a 2nd straight week of heavy increases to net length held by money managers in refined products. WTI was the only exception this week with a modest decrease, and RBOB was perhaps the most noteworthy as its speculative length reached the highest level in almost a year suggesting the hedge funds really don’t care about, or aren’t aware of, the winter doldrums for gasoline demand.  

Baker Hughes reported a net increase of 1 active oil rig working in the US last week, with the gains coming in Louisiana and Colorado, while Texas saw a decline of 3 rigs. A Reuters article last week highlighted a new challenge for producers in Texas that may have to curb production because they don’t have a way to dispose of their waste water without causing earthquakes. Add that to the list of reasons why the recovery in US drilling is much slower vs the past two boom/bust cycles along with supply bottlenecks, labor shortages and more hesitant financing.

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