The 2nd half of trading for 2018 is off to a weak start for oil markets – after ending the 2nd quarter on a strong note – following a strange string of headlines over the weekend involving the US president asking Saudi Arabia to use its spare capacity to lower oil prices. The original tweet was later walked back by the White House, in what seems to be a strange form of recognition that the excess capacity needed simply doesn’t exist.
Money managers poured back into WTI last week, with new long positions (betting on higher prices) and heavy short covering sending the net-long position held by funds to a 6 week high. If WTI was the only data point, it would be easy to write the spike off to money managers betting big after the OPEC meeting, but Brent & Products saw small declines in speculative length, so it seems like WTI is reacting more to the Syncrude outage than to any global production changes.
Baker Hughes reported a decline of 4 oil rigs last week, marking the first time in 9 months that the count has dropped 2 weeks in a row. The summer plateau in the rig count is something we’ve seen in the past couple of years, and given the lack of takeaway capacity in the Permian, it’s possible we’ll see rigs being deployed to other basins in the back half of the year.
Note on RBOB prices: The July RBOB contract expired some 3 cents higher than August, so today’s values are down a nickel from the July settlement although the August contract is only down a couple cents. Cash markets are not reflecting that extreme backwardation as most regional basis values adjusted accordingly to offset the spread in futures.