The “risk off” trend continues this morning as energy and equity markets around the globe are reacting negatively to Friday’s stock market plunge, which marked the worst day for US stocks in over 18 months. All hope is not lost for the bulls however as prices in both asset classes have pulled back from the early morning lows, and have kept the longer term trend lines intact for now.
WTI is faring relatively well during the sell-off, with the WTI/Brent spread shrinking to its smallest levels since before the hurricanes. The land-locked status of the WTI hub in Cushing OK has been a knock on the contract for years, but as US exports have picked up steam and new pipeline options are drawing down inventories, it appears that the NYMEX crude oil contract may be somewhat insulated from the broader sell-off. ULSD prices meanwhile are not faring so well, dropping a dime in the past week and approaching a technical trapdoor in the low $2 range. If diesel futures dip below that $2 mark, charts suggest there may be another 10-15 cents of downside near term.
6 more oil rigs were put to work last week according to Baker Hughes, marking a net increase of 18 rigs so far in 2018. There has been much written about oil producers needing and/or wanting to show more discipline in their exploration now that most are turning profits again and enjoying an industry friendly regime. The weekly rig count will be a key measure to see if they stick to their plan.
Money managers still liked betting on higher oil prices as of January 30, with little change from the record high net length held in the big 4 petroleum contracts. The weekly report was compiled prior to the selloff later in the week, so it remains to be seen if the speculators that have been enjoying the rally over the past 7 months will head for the exits now that a bit of fear has returned to the marketplace.