Money Managers Were Piling Into Crude Oil Contracts As They Rallied To A 5-Month High Last Tuesday

Market TalkMonday, Mar 25 2024
Pivotal Week For Price Action

It’s a mixed start to the week for energy markets with ULSD trying to rally, up 2 cents in the early going, while crude oil prices cling to small gains, and gasoline prices show small losses in the early going.

Ukraine shrugged off the reported requests from US officials to stop blowing up Russian refineries, with at least 2 more plants targeted over the weekend, one of which was forced to shut down a crude unit as a result. Estimates vary, but the production taken offline by the refinery attacks so far in March is somewhere in the range of 400,000 to 700,000 barrels/day, which has pushed total output in the country to the lowest in a year. Perhaps most notable about the weekend attacks is that the refineries were more than 500 miles from Ukraine, which highlights the expanding capabilities of Ukraine’s drones.

As expected, Money managers were piling into crude oil contracts as they rallied to a 5-month high last Tuesday. The large speculative category of trader added more than 100,000 contracts worth of net length in WTI and Brent, most of which was new long positions. The net length in Brent is now at the highest level we’ve seen in a year but remains well below the historical levels which suggests the funds have plenty of more money to bet if they choose to do so.

The big funds were also piling into Gasoil (Europe’s version of ULSD) contracts last week, with a net increase of nearly 25,000 contracts, split fairly evenly between new longs and short covering. RBOB contracts also saw a healthy increase in length, although more than 5,000 new short positions were also added with some funds apparently betting that the 6-month highs reached last week will mark the peak of the spring rally. ULSD remains the least favored of all the petroleum contracts, with minimal change last week despite the big move in Gasoil.

Baker Hughes reported a decline of 1 oil rig and 4 natural gas rigs drilling in the US last week. While the oil rig count has seen some modest recovery so far this year, the decline in nat gas rigs last week puts the total at its lowest level since January 2022 as producers struggle with low prices while they anxiously await more export capacity to help US natural gas prices to start approaching those in the rest of the world.

A trio of refinery upsets were reported to TX regulators Friday.

Exxon reported an upset at its newly expanded Beaumont TX facility, although it’s unclear if operating units were forced to slow as a result.

Total meanwhile continues to struggle to get its Pt. Arthur facility back online, more than 2 months after the January cold snap, reporting a leak Friday that forced it to shut down a crude unit.

Valero reported an upset at its McKee refinery in the TX Panhandle, but it appears that only the facility’s flare gas recovery system was impacted so it shouldn’t have a notable impact on output.

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Market Talk Update 03.25.2024

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action