We’re Seeing Another Round Of Profit Taking To Start The Week
We’re seeing another round of profit taking to start the week, after the energy complex just finished its strongest weekly performance in nearly 6 months. November ULSD futures traded down more than 8 cents overnight, but are already bouncing back above the $4 mark, and down just a penny on the day, as signs of tight supply continue to show up all around the country. Backwardation is back with cash markets for distillates in several regions now 40-50 cents higher for prompt barrels compared to November delivery.
Money managers were jumping back on the energy bandwagon last week as prices surged. All of the major petroleum contracts saw a large increase in net length held by the large speculative trader category, with heavy short covering and new length both contributing to the large weekly increases. If hedge funds have decided that it’s safe to get back in the energy game after many sat on the sidelines when extreme volatility made petroleum contracts too risky, that could be a catalyst for another price rally as open interest remains at multi-year lows, and we could have witnessed some of that with the strong gains in the back half of the week, given that the COT report data is gathered on Tuesday. On the other hand, while on a percentage basis, last week’s gains were quite large, the outstanding positions are much lower than we’ve seen in year’s past.
Baker Hughes reported a drop of 2 oil rigs and 1 natural gas rig drilling in the US last week, as the production plateau stretches out for a 3rd month. Later this week we’ll see monthly oil market reports from the EIA, IEA and OPEC and we’ll see if those agencies are revising US output forecasts lower now that drilling activity seems to have stalled out, and DUC wells have reached their lowest levels since the EIA started tracking them 9 years ago.
The war of words over California’s runaway gas prices continued last week, with the industry responding to more claims of price gouging, while the governor is considering a special legislative session to address the issue, after the upcoming election of course. Basis values for CARBOB gasoline bounced Friday after the huge drops seen earlier in the week, while distillate values remained unchanged for a 3rd day as buyers seem scarce at these lofty levels and no sellers have stepped in to pop another bubble just yet.
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