ULSD Pushes to 6-Month Highs, Bears Falter

Diesel futures saw a modest pullback Friday, but still managed to reach a fresh 6 month high and settle with a 6th consecutive week of gains. The light selling has carried through to push prices into the red this morning, while gasoline futures cling to small gains. 

The bears seem to have been throwing in the towel with heavy short covering a theme for large speculators with bets on lower price declining by more than 25% in RBOB, Brent and Gasoil contracts in just 1 week.  Buy high, sell higher? New length was also added across the board, pushing the net length held by money managers to fresh multi-month, and in a few cases multi-year highs. 

Baker Hughes reported another decline in the US drilling rig count last week, losing a net 4 oil rigs while the natural gas count held steady. Texas led the decline again, losing 8 rigs, and it’s hard to blame the operators if you stop and think about what it’s like to work outside in West and South Texas during this most recent heat wave. The total oil rig count is now at its lowest level since March 2022. 

So far global energy markets seem to be shrugging off reports that oil infrastructure has come to the front lines of the war in Ukraine. Last week we saw a major Russian oil port and an oil tanker near the Black Sea targeted by drones, with threats that other ports were also at risk. There are also reports that Russia is planning a false flag operation at a Belarusian refinery to draw that country further into the conflict.  

Something to watch this week: The July CPI report is due out Thursday and given the strong rally in energy prices – which had been the big inflation buster over the past year – the market could be in for a rude awakening on the persistently high prices despite central banks raising rates to their highest levels in more than 20 years.  

More bad news for Suncor. As if the comedy of errors in the past year weren’t bad enough, the EPA Friday said the state of Colorado must revise its permit renewal for the beleaguered Commerce City refinery complex to ensure compliance with carbon monoxide and opacity limits. This comes ahead of the state’s mandated change to reformulated gasoline grades beginning in 2024 to meet the pollution standards set in the Clean Air Act, which seems like a big hurdle to clear for a facility that’s struggling just to operate at all. 

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