Energy Futures Up Modestly After Diesel Prices Touch Pre-War Lows

Diesel futures touched their lowest prices since before Russia’s invasion of Ukraine overnight before seeing a modest bounce of a couple cents this morning. The low trade at $2.7609 less than two weeks after the March HO contract hit a high of $3.58 fulfilled the technical target made when the chart support failed to hold last week and sets up a potential drop to the $2.50 range in the next few weeks if buyers don’t step in at these levels. 

While the drop in diesel futures has been eye-opening, it still hasn’t been confirmed in US Cash Markets, or by RBOB and WTI contracts that are all still trading well off their December lows. That lack of confirmation from the other contracts suggests the past two weeks have been more about diesel prices normalizing after an incredibly strong year more than a complete market collapse due to fear of a global economic slowdown.

We didn’t get to see the reaction by large speculators to the melt-down that came right after they’d increased their bets on higher prices, as the CFTC was forced to delay publication of its weekly Commitments of Traders report due to a Russian-linked ransomware attack at ION Derivatives, a UK-based service provider that processes transactions and submits trading data to the agency. It appears that the attack may be disrupting trading in some ETF derivatives but is not directly impacted trading on any NYMEX or ICE Commodity futures or options.

The official embargo on Russian diesel exports took effect Sunday, without much fanfare as Western buyers had months to stock up ahead of time and flows of product to the East seem to be ramping up well. A Bloomberg note over the weekend highlighted the increasing role India is playing in turning Russian crude and unfinished fuel oil into gasoline and diesel destined for the US and Europe.

Motiva’s Port Arthur Refinery reported an incident over the weekend that disrupted operations at one of its coker units. The event caused flaring for around 5 hours, but at this point it does not appear that run rates were reduced because of it. 

The IEA’s director over the weekend said the potential rebound in demand from China may force producers to reconsider their output policies this year, implying that OPEC would need to end its voluntary restrictions to meet the increased consumption. 

US oil producers aren’t acting like they got that memo, with Baker Hughes reporting a decline of 10 oil rigs and 2 natural gas rigs in the US last week, bringing the total count to a 4-month low. The declines were spread out fairly evenly across the drilling geography suggesting this wasn’t an isolated even caused by the winter storms.

The huge earthquake that killed more than 1,000 people in Turkey also temporarily halted operations at a major crude oil pipeline system that delivers oil from origin points in the Caspian Sea and Iraq to the Mediterranean.  It appears that major damage was avoided to the pipeline, so shipping should be able to resume shortly. Syria was forced to shut its largest refinery after the quake, but given that facility is only 130mb/day, and it’s in Syria, it’s not going to have much impact on markets elsewhere.

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