Energy Markets Are Ticking Lower This Morning After Reaching 2-Month Highs To End Last Week

Energy markets are ticking lower this morning after reaching 2-month highs to end last week. The breakthrough to the upside last week leaves the door open for higher prices in the week’s ahead, even though moves lower like we’re seeing this morning are necessary to correct the short-term overbought condition on some charts. 

Friday’s session was highlighted by early weakness turning into more afternoon gains following reports that a tanker operated by Trafigura carrying Russian naphtha was hit by a Houthi missile, and a US destroyer shot down another missile shortly thereafter. That targeting of tanker with Russian fuel aboard marked a potential paradigm shift for the tanker industry that had largely shrugged off the attacks, particularly with Russian fuel making up the majority of southbound tanker traffic through the Suez Canal.

While that new attack risks higher prices near term, it could also help to bring about a long term resolution as Iran’s proxies are turning the country into an international pariah, with China, Russia and the US all now having a vested interest in stopping the attacks on shipping even if their other interests are not aligned.

Buyers jumped back in when trading resumed Sunday night following the attacks on a US military outpost in Jordan that killed 3 and injured dozens more, but those gains didn’t last long as the market continues to discount the threat to physical supplies despite the continuous ramping up of violence in the region.

The White House on Friday announced a pause in the permitting process for new LNG export facilities. 

A WSJ article over the weekend argues why this policy is actually worse for the environment, and the chart below from FERC data of existing projects shows why it’s probably nothing more than a political stunt in an election year with capacity set to more than double in the next few years via projects already approved and under construction, while even more projects are already approved.

Money managers continue to be conflicted in their energy contract positioning, with large speculators reducing their net length in ULSD and Brent contracts last week, while increasing their bets on higher WTI, RBOB and Gasoil prices.  A large wave of short covering in WTI was perhaps the most notable change on the week as the big bettors seemed to throw in the towel on getting lower US crude values after WTI touched a 2-month high.

Baker Hughes reported a net increase of 2 oil rigs working in the US last week, while natural gas rigs decreased by 1. 

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