Energy Complex Seeks Recovery Rally After Reaching One Year Low

Diesel prices are trying to lead the energy complex in a recovery rally this morning, trading up nearly 6 cents/gallon in a holiday-shortened trading session after reaching a 1 year low on Friday.  Gasoline futures are up nearly 4 cents so far today, after staging a notable comeback Friday afternoon, and erasing most of the losses from earlier in the day.

US Spot markets are not being assessed so most of the refiners and trading houses are taking the day off.  Futures are trading since apparently the rest of the world doesn’t celebrate Washington’s birthday, but will halt at 12:30 central, and there will not be any settlements. 

Diesel prices are back in “rally or else” mode after last week’s futures action set the stage for a slide to $2.50 or below with the lowest weekly settlement since before Russia invaded Ukraine a year ago.  Cash markets aren’t quite so bearish however with many wholesale markets still holding above the lows set in December.  Gasoline prices don’t look nearly so bearish on the charts, still holding well above their February lows, and hinting that they’re ready for the annual spring rally with just 1 week left for the last winter grade RVP contract of the season.

The CFTC still has not released any commitments of traders data since the January 24th report after a cyber-attack impacted a service provider. Last week was the 3rd missed weekly report, so we can continue guessing how the big money funds have been reacting to the waves of selling we’ve seen so far in Feb.

Baker Hughes reported a decline of 2 oil rigs working in the US last week, while natural gas rigs saw an increase of 1.  The total rig count has essentially held steady for the past 5 months as US drillers remain unenthusiastic about the forward outlook for prices even as US oil exports are in high demand.  Canadian drillers meanwhile are getting busy again, with the country’s total rig count reaching a 3 year high in February, as producers make their annual race to take advantage of frozen ground to reach areas that are off limits once the ground thaws. 

Reuters reported last week that Chinese refining capacity has overtaken the US for #1 in the world, with new plants coming online increasing total output potential to 18.4 million barrels/day. That figure is less than the 19 million barrels/day the US had in capacity 2 years ago before the wave of refinery closures.  Despite the diverging paths on capacity, the US is still the world’s largest refiner, as output domestically holds around 90% of nameplate capacity, while Chinese plants only average around 70%.

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