Energy prices are slipping into the red this morning, testing the lower end of the recent trading range after failing to break the top end last week.
Refined products are leading the way lower this morning, and their short term technical indicators are beginning to favor more selling this week. A major question will be if products can pull crude below its $48 floor, or if crude can continue to hold us in the sideways pattern. We’ve reached the mid-month reporting deluge with the EIA’s STEO due out tomorrow, OPEC’s monthly report due Thursday and the IEA’s monthly report coming out Friday.
Speculators seemed to have gained some confidence in the past week, adding to net-long positions in all of the big 4 petroleum contracts. It’s worth noting that the increase in WTI was driven by new long bets being added to the market, while in Brent it was the same story of short bets leaving the market that caused the latest increase. One thing to keep an eye on in the next few weeks: Speculators are now net-short the US Dollar after fell to its lowest levels in over a year vs a variety of other currencies. As we’ve seen with oil prices several times over the past few years, extreme positions in either direction held by funds can be a contrary indicator, and could possibly have a bearish influence on oil prices if those dollar shorts are squeezed out of the market, just as we saw so many oil shorts squeezed out in July.
Baker Hughes reported a decline of 1 oil rig working in the US last week, continuing with the plateau we’ve been witnessing over the past 5 weeks. It’s possible that drillers will simply wait to see if crude can break back above $50 before resuming the upward climb.
Another weekend, another tropical storm. This time, TS Franklin is heading to the Yucatan peninsula and while it could strengthen to a hurricane before making landfall, it should stay well south of any US production or refining assets. Hurricane activity continues to ramp up this time of year, so expect a potential system to form at least once a week from now through September.