Energy Markets Modestly Higher

Energy markets are ticking modestly higher to start the new week, despite another big selloff in equities overnight, bucking a recent trend of the two moving in the same direction more often than not.

The VIX jumped to its highest levels of the year last week as a bit of fear returned to equity markets. The correlation between daily price moves in ULSD and WTI compared to the S&P 500 over the past 30 days surged north of 80%, the highest levels of the past 9 months, while RBOB correlations were distorted by the RVP transition. That sudden increase in correlation is another indicator that demand fears are becoming more of a concern as any slowdowns in economic activity will hamper both asset classes.

Money managers were decidedly bearish on energy contracts in last week’s COT report, liquidating long positions across the board in crude and refined products, while making large increases in short positions on most contracts. The prospect that something resembling a peace deal could loosen up restrictions on Russian barrels, and the potential for Saudi Arabia and Friends to be given a favor by restricting Iranian and Venezuelan exports seem to be in play on the short bets, as does the potential for the latest trade war hampering global demand. See this Bloomberg article for an interesting read on how the US energy production dominance is contributing to the rapid change in geopolitics.

The exception to the bearish speculator rule last week was in the WTI contract that saw heavy short covering, in what could be a reaction to the potential demand for replacement barrels to Canadian imports, while Cushing stockpiles are hovering at historically low levels.

Hedge funds continued adding to their long positions in D4 RINs and California’s CCA positions, while also seeing minor buying in D6 rins for the week. On the flip side, those large speculators were reducing their bets on higher California LCFS and Washington CCA credits.

While transit through the Red Sea has slowly started increase following the ceasefire between Israel and Hamas, the Houthi Rebels issued another warning over the weekend that they would resume their attacks on shipping interests if Israel doesn’t lift its latest blockade.

The U.S. oil rig count held steady at 486 active rigs according to Baker Hughes latest count, while natural gas rigs dropped 1 to 101.

Exxon reported a leak at their Beaumont TX refinery in a hydrogen unit Friday night which was expected to result in 24 hours of flaring according to the company’s initial estimate.

P66 reported an upset in a delayed coker unit at their Sweeny TX refinery on Friday, with that event lasting less than 3 hours.