Energy prices are moving higher to start the week, the first time in 7 sessions that all contracts are in the green, joining in on what appears to be a “sigh of relief rally” in US equity markets after the sell-off reached a fever pitch on Friday afternoon. There seemed to be a bit of capitulation Friday afternoon after Baker Hughes reported a sharp increase in US drilling rigs, with WTI falling $3/barrel and both gasoline and diesel prices dropping 9 cents on the day to cap off the 2 week decline of nearly 30 cents/gallon.
RBOB gasoline futures came within a few ticks of their 200 day moving average for the first time since October during the Friday sell-off, but have bounced 6 cents from that level, and at one point overnight were up nearly 9 cents from Friday’s low trade. While ULSD futures didn’t threaten their 200 day MA Friday, they have still bounced by a nickel since Friday’s low. If this bounce can hold up for the week, the weekly charts suggest we may have seen the end of this correction, but if Friday’s lows are taken out, there’s a strong argument to be made for another $5 decline in crude and 12-15 cent decline for refined products.
Baker Hughes reported 26 more oil rigs were put to work last week, doubling the total increase witnessed over the past 3 months. That report reinforced several data points from the EIA earlier in the week that suggested the US was on the verge of breaking its all-time high for oil production, and perhaps surpassing Saudi Arabia and Russia along the way.
As of Tuesday February 6th when the data was compiled, money managers did not seem to be fazed by the declines in energy markets, with only modest reductions in their net-length reported by the CFTC and ICE. Based on the crescendo of selling we saw Wednesday through Friday however, it’s likely we will see a more dramatic reduction in those positions in the next commitment of traders report due out at the end of this week.