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Oil and Gas Prices Are Seeing Another Healthy Selloff To Start The Week

Monday, Jul 11 2022
Market Talk

Oil and gasoline prices are seeing another healthy selloff to start the week, with more COVID restrictions in China taking credit for much of that move, while Diesel and Natural gas prices are moving higher after Russia shut the Nord Stream 1 pipeline for maintenance, and some doubt it will come back online.

Adding to the bearish sentiment in crude oil this morning, a Russian court lifted its suspension on the Caspian crude pipeline, which transports 1.2 million barrels of oil per day.

The $1/gallon drop in gasoline futures over the past month is trickling its way to the pumps, with the national average retail price falling for 24 straight days, and having its largest single-day drop since 2008 on Friday.

NYMEX contracts saw heavy liquidation of long positions by money managers early last week, and a large amount of new shorts enter the market that no doubt contributed to the heavy sell-off we saw early in the week.   Open interest for crude and refined product contracts remains near 5-year lows, which is also contributing to the volatility with a lack of liquidity to buffer the daily price swings.

Baker Hughes reported 2 more oil rigs actively drilling in the US, while the natural gas rig count held steady.  At the current pace, we should see the total US rig count reach pre-pandemic levels by year-end. 

The National Hurricane Center is tracking a potential storm system in the northern Gulf of Mexico this week, giving it a 30% probability of becoming a tropical storm in the next 5 days.

Even with the low odds of developing into a named storm, this system could further disrupt barge traffic on the intra-coastal waterway and create more terminal outages at locations along the Florida panhandle that have already had more than their share of runouts this year.

An EIA note this morning highlighted the surge in US LNG exports in recent years, well before Russia’s invasion of Ukraine made Natural Gas the world’s most important commodity.   A WSJ article last week noted how Europe’s race to find new LNG sellers may be choking off supplies to poorer countries around the world. 

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