Energy markets are starting on a weak note this morning after a wild Friday session brought oil and diesel prices back up close to their highs for the year.  The back and forth action over the past week has left the technical outlook for oil and diesel prices in neutral, while gasoline prices are suddenly looking like they could be in for a big drop.

ULSD came within 3 points of reaching its highest level of the year during the Friday rally, with little to explain the 6 cents spike other than crude oil prices being strong.  Diesel prices did pull back later in the session, and the weak start this week suggests the conviction to press a move towards the $2 mark may be lacking.  Until we see ULSD break below $1.88 or above $1.96, it seems like diesel prices will remain range-bound as they have been for the past month.

RBOB futures meanwhile are currently testing chart support in the low $1.70s, and several short term technical indicators are pointing lower, suggesting we could see another 10-20 cent drop in gasoline prices over the next few weeks.  Seasonal influences also favor softer gasoline prices as lower demand and less-restrictive winter specs combine to increase supplies in most markets, a phenomenon known by many in the industry as the Winter doldrums.

The net long position held by money managers in WTI surged last week to the 2nd highest level on record, from a combination of new long bets and short covering.  Brent and ULSD also saw modest increases in their net length held by money managers, while RBOB saw another small decline.  While gasoline is lagging a bit, the sentiment among speculators remains firmly in bullish territory as all 4 of the contracts are well above the holdings of money managers in previous years, and most are within several thousand contracts of all-time highs.

The Venezuelan crisis took an unusual turn as President Nicolas Maduro announced plans to create a new crypto-currency to get around US sanctions.  There were few details provided along with the plan, and unless cars can soon drive on crypto-gasoline, it seems unlikely that this will do much to change the country’s fortune.

2 more oil rigs were put to work last week according to Baker Hughes’ weekly rig count to the highest level in 9 weeks.  With the recent rally in oil prices, many analysts expect that count to continue to increase over the coming weeks.

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