The energy complex is continuing its slow and steady march higher this morning, with both WTI and ULSD reaching fresh 1-month highs in the past hour of trade.  This morning’s rally seems to be aided by news that Libya’s largest oil field was forced to stop production just one week after being reopened as the cycle of violence in that country continues.

Technical momentum is clearly on the side of the bulls, with most short term indicators pointing higher, and suggesting we are likely to see a test of the top end of what was the seemingly never ending trading range that held prices for the first 2 months of the year.  Some caution is warranted however after 8 out of 10 trading sessions have seen higher prices, some indicators are moving into over-bought territory meaning we’re due for a corrective pull-back before long.  Fundamentally there is also reason to question the sustainability of this most recent move as refinery margins have recovered nicely, and should incent US plants to continue cranking up to what could end up being another record-setting year for refinery run rates.

The managed money category of trader (aka speculators, aka hedge funds) spent most of March trimming down their net long positions (bets on higher prices) in WTI and Brent after prices broke below their 2017 range.  Last week they started adding to those net long positions once again, no doubt jumping back on the bandwagon once WTI managed to reclaim the $50 mark.  Similar to what we saw as the net length was shrinking, the new additions reported last week were split between new longs, and short covering.

The Baker Hughes weekly rig count has been like clockwork recently, with 143 rigs in 14 weeks to start the year, and another 10 oil rigs added last week.  With the price recovery in the past week, there’s little reason to think that this trend will change, and at this pace, drilling activity should surpass 2015 levels by the end of May.

CLICK HERE for a PDF of today’s charts

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