Energy Markets Are Trading Quietly Lower To Begin The Week, As The Upward Momentum Of The Prior 2 Weeks Is Clearly Waning

Energy markets are trading quietly lower to begin the week, as the upward momentum of the prior 2 weeks is clearly waning. Charts still suggest we’re likely to see a stretch of sideways action near term as traders re-set positions after the big shorts finish their unwinding and the positioning for the next big move begins.

10 days ago, there were reports that diesel in Europe was showing signs of tightness again, which aided in the price rally that added nearly 30 cents to ULSD values in just over 2 weeks. This week there are reports that traders are converting the largest tankers in the world to carry diesel instead of crude oil, to haul some of Asia’s excess supply to the west, which is likely to help keep a lid on any price advances in the Atlantic basin.

The CFTC’s weekly Commitments of Traders report is delayed until later today due to the holiday last week, but the European data published shows that short covering continued for money managers last week, and a large number of funds turned around and jumped on the bullish bandwagon, creating a 93% increase in net length for Brent and Gasoil contracts last week. While the funds getting long was the big story, the producer/merchant trade category also saw a healthy increase in short positions, which suggests the big physical players in the industry see the June recovery rally as a good opportunity to put on some hedges for their future production.

Baker Hughes Reported a net decrease of 3 oil rigs active in the US last week, bringing the total to a fresh 2.5 year low at 485, while natural gas rigs held steady at 98.

The tropics are taking a week off after having 3 potential storms, including our first named tropical storm of the season a week ago. The NHC reports no activity is expected in the next 7 days. Meanwhile, we’re reminded that it doesn’t take a named storm to create issues with supply infrastructure as a large terminal in Linden New Jersey is being taken offline today for emergency repairs to fix damage done by thunderstorms over the weekend. The silver lining with those storms as they’ll usher in cooler temperatures for large portions of the country that weren’t enjoying a heat wave last week.

Valero’s 3 rivers refinery in South Texas reported an upset in a sulfur recovery unit over the weekend, while Marathon’s Galveston Bay refinery tried to regain the lead in regulatory filings for the year with another hiccup on an FCC unit reported Friday. The other frequent flier on the TCEQ filings, P66’s Borger refinery also has work being done on an FCC unit today, just a couple of weeks after that same unit was supposed to complete repairs.

The EIA this morning highlighted the closure of one of New England’s oldest power plants. The Mystic generating facility in Charlestown MA was nearly 80 years old, and had struggled for years to be profitable as it was reliant on LNG imports to operate, since the region still hasn’t figured out how to use the huge resources just a few hundred miles to the west to take care of its energy needs.

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