Energy Assets Attacked Again

Energy prices are ticking higher again to start the week, after taking a break in Friday’s session. Prices are holding just below the nine month highs set last Thursday, with a trio of fundamental, technical and sentimental factors all suggesting we may see another breakout today.

U.S. equity markets are moving higher this morning in what appears to be at least somewhat driven by optimism over the initial rollout of the first FDA approved COVID vaccine over the weekend. Of course, anytime the market rallies these days, stimulus package hopes also are given credit, even though there’s no clear signs of progress at the moment.

An oil tanker was apparently attacked off the coast of Saudi Arabia early this morning. That’s the fourth time energy assets in the region have been targeted, and this has the potential to be by far the most meaningful of those attacks as it temporarily shut operations in the country’s busiest port, and reminds the market that we won’t always be able to only worry about an overabundance of supply as we’ve done for most of this year.  

Baker Hughes reported 12 more oil rigs put to work last week, five in the Permian Basin, three in the Eagle Ford, one in the D.J. and the rest scattered in smaller basins. While the rig count has increased in 11 of the past 12 weeks, and the nine month highs for oil prices are likely to continue this trend of modest expansion, it’s worth noting that the total U.S. rig count is still below the lowest level set in the previous price crash five years ago.

Money managers continue to add to their bets on higher energy prices, with Brent, RBOB, ULSD and Gasoil all seeing weekly increases in large speculative net length, although WTI length dropped slightly after five straight weeks of gains. A Bloomberg article suggests this trend could continue as the oil trade has become a popular way to bet on COVID recovery, which could draw in the bandwagon jumpers who missed out on a 40% increase since November 1, and keep pushing prices higher. 

Today’s interesting read: The independent traders who made big money when WTI went negative in April, and how they’re now fighting to prove they did nothing wrong, and hold onto those gains.

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