Another Wave Of Selling Friday Pushed Prices Near The Low End Of Their August Trading Range

Energy prices are slipping modestly lower to start the week, after another wave of selling Friday pushed prices near the low end of their August trading range.

Markets seem to be shrugging off the threat of a Canadian rail strike that may take more than 100mb/day of oil and refined product exports to the US offline, thanks in large part to the recently-expanded pipeline capacity of the Transmountain pipeline.

Mega Merger Monday? Couche Tard has reportedly made an offer to buy 7-11’s parent company. While terms of the offer have not yet been released, the combined network would number more than 100,000 convenience stores worldwide, which will no doubt raise red flags for regulators in the US and abroad.

Bermuda took a direct hit from Hurricane Ernesto over the weekend, but while the island nation completely lost power for most of a day, it appears that more serious damage and fatalities were avoided. The storm’s path also shifted East over the past couple of days, so Newfoundland will avoid a direct hit, meaning the Come By Chance RD refinery is dodging a bullet. Meanwhile, we got another reminder overnight that it doesn’t take a hurricane to disrupt operations as a large terminal in Connecticut was taken offline for nearly 6 hours following flooding rains and high winds as severe weather stretched along the Eastern seaboard that will no doubt hamper demand for the next couple of days.

Money managers continue to struggle with timing the energy market this year, adding more than 69,400 contracts (nearly 3 billion notional gallons) to their net length across the big 5 petroleum futures & options, just in time for the market to drop 5% in the back half of the week. Short covering in Brent crude contracts was once again the main driver of the overall net length, as hedge funds continue to try jumping on the demand-fear bandwagon, only to get squeezed out in a week or two similar to what we saw in May and June. That short squeeze phenomenon no doubt makes the Saudi energy minister who famously warned funds from doing this exact thing back in 2020 smile, but the overall short position held by the big speculators still remains at the highest level since the COVID summer for Brent, ULSD and RBOB which could eventually set the stage for the next big price rally.

Baker Hughes reported a decline of 2 more active oil rigs last week, while the natural gas rig count ticked up by 1 after touching a 3-year low last week. The Permian basin rig count was down 2 on the week.

PBF continues to have operational challenges at its Torrance CA refinery. The company reported unplanned flaring at the site Friday night, then reported Sunday that they expect more flaring to last for the next 5 days as they work to resolve the issues.