Mixed Start To The Week For Energy Futures, While Money Managers Seem Uncertain How To Play This Market
It’s a mixed start to the week for energy futures that continue to struggle to find direction after a strong recovery bounce ended with a whimper last week.
Friday’s sell-off in ULSD wiped out the gains made earlier in the week, and the contract ended with a 7th straight weekly decline. While prices are still 15 cents above the 2023 lows, the inability to sustain a recovery rally keeps the bear market trendlines intact, and the risk of a slide to $2 very much alive.
RBOB futures look less bearish than diesel on the charts but are no longer suggesting that a run toward $3 is in the cards, even though we’re just approaching the driving season.
Money managers seem uncertain about how to play this market, adding new length to ULSD and WTI contracts, but shedding long positions in RBOB and Gasoil. Brent meanwhile saw a huge influx of more than 26,000 new short positions added last week, which pushed the net length held by large speculators to the lowest level of the year. RBOB gasoline saw a similar spike in new short positions as the big money funds seem to be betting the spring gasoline rally ended 3 weeks ago. Open interest on petroleum contracts has been slowly increasing for most of the year as the return to more tolerable volatility levels has allowed some players back on the field.
Baker Hughes reported a modest decline of 2 oil rigs active in the US last week, which brings the total count to its lowest level in nearly a year. Natural gas rigs meanwhile saw a big drop of 16 rigs last week, more than 10% of the total active US count, which dropped that number to a 13 month low.
Magellan is being acquired by pipeline operator Oneok (pronounced one oak) in a deal valued at nearly $19 billion combining two of Tulsa’s largest companies. The two companies have a great deal of geographical overlap in their systems, but since Oneok is primarily a natural gas pipeline operator, the foray into refined product shipping offers diversification via consolidation, and more importantly should allow for FTC approval.
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Energy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
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WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.