Energy Futures Stumbling Out Of Gates

Energy futures are stumbling out of the gates to start the week with most contracts down 1% or more overnight as the global oil supply outlook that seemed so bullish a week ago suddenly appears to have spare capacity starting to build.

Reports that Russia is considering ending its oil production cut agreement with OPEC to gain back market share from US exporters is getting credit for the early selling this morning, although the interview referenced makes it clear no decisions have been made. Right on cue, the EIA Published a note this morning highlighting the surge in US oil exports in 2018, with Asia the largest regional destination, while Canada remains the largest single importer of US crude.

In addition, Iranian exports are still looking for a home as buyers shy away now that the exemptions to US sanctions are set to expire, adding more supply capacity to the world market.

This looks like it could be a pivotal week for gasoline prices as the last of the winter-grade barrels stop pricing for the season, and futures are close to breaking the bullish trend-line that’s been in place since January. If that trend breaks, and last week did mark the seasonal top, there’s a strong case to be made for gasoline prices to lose another 20 cents in short order.

Money managers added to their net-length in WTI for a 7th straight week, and for a 13th out of 14 weeks to start the year for Brent. The enthusiasm, though long in duration, is a little light in volume as both contracts are just now reaching their 5-year average for bets on higher prices from the large speculator category of trader.

After a 2 week dip into net-short territory, money manager holdings of ULSD have returned to a net-long position. RBOB meanwhile has the most speculative action – relative to seasonal norms – as those holdings remain above the 5 year seasonal range for a 5th straight week.

Producers meanwhile seem content to sell into the strength in prices, with swap dealer net-short positions in WTI increasing for an 8th straight week.

Baker Hughes reported 2 more oil rigs were put to work last week, a 2nd straight increase after 6 consecutive weekly declines suggesting that higher prices may stabilize drilling activity.

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