Energy And Equity Markets Lower After U.S. Credit Rating Downgrade

It’s a risk off start to the week with both energy, equity and treasury markets all ticking lower after the U.S. credit rating was downgraded thanks to a growing mountain of debt and souring economic outlook. That negative sentiment is so far outweighing reports that Russia has detained an oil tanker from Estonia in an apparent retaliation for a shadow fleet tanker being seized earlier this year, escalating tensions between a NATO member and the world’s 2nd largest oil exporter.

ULSD futures have given up 10 cents from last Wednesday’s high, while RBOB futures are down 6 cents in that stretch after the June RBOB contract failed to break through chart resistance at the 200 day moving average.

Money managers were acting bullish on energy contracts in the latest CFTC COT report, which showed data compiled last Tuesday, covering short positions across the board and adding new long positions in ULSD, RBOB, Brent and Gasoil while WTI was the only contract to see a reduction in long positions. Brent was the biggest mover on the week with nearly 44,000 new long positions added and 9,600 short positions closed, which combined increased the large speculative net length held by more than 54% in just one week.

While the big money bettors were bullish on petroleum contracts last week, they were reducing their bets on higher credit values. California LCFS, CCA contracts and Washington CCA’s all saw modest decreases in speculative length, while D4 RINs saw the biggest drop of the year. The lone holdout came from D6 RINs which saw a small increase.

Baker Hughes reported a decline of 1 oil rig and 1 natural gas rig drilling in the U.S. last week. The Permian Basin continued to lead the slide, losing 3 rigs on the week and bringing the total count for the country’s most prolific basin to a fresh 3.5 year low.

Chevron reported unplanned flaring at its El Segundo CA refinery to South Coast regulators Sunday night, saying only that an investigation was under way and that a stop time was not yet known. That facility was forced to shut multiple units a couple of weeks ago which contributed to a strong rally in basis values that was largely wiped out last week as those units came back online.

California’s Air Resources Board (CARB) resubmitted their proposed LCFS amendments Friday, which make the program more stringent, with a target effective date of July 1 after the state’s legal watchdog (OAL) disapproved the original changes that were set to take effect at the start of the year. The OAL has until June 30th to rule on the latest proposal.

We’re 2 weeks away from the official start of hurricane season in the Atlantic, and while multiple forecasters are calling for another busy year for storm activity, so far in 2025 the tropics have been unusually quiet.