Energy Prices Are Seeing Strong Buying To Start The Week Following A Variety Of New Supply Concerns

Energy prices are seeing strong buying to start the week following a variety of new supply concerns, while the FED’s Friday foreshadowing of interest rate cuts has demand fears on the sidelines for now.

In addition to the missile volleys between Israel and Hezbollah over the weekend, an oil tanker has been burning in the Red Sea since being attacked by Houthi rebels on Friday threatening both an ecological mess, and more restrictions on transit through the region.

While it will grab fewer headlines than the variety of bombardments in the region, news that Libya is shutting down all oil exports as its two rival governments fight over control of the country’s banking will have a more immediate impact on oil supplies.

RBOB gasoline futures have taken back 14 cents since bottoming out last Wednesday, while ULSD futures have added 11 cents from Thursday’s low trade. While the rally is certainly noteworthy, it hasn’t yet broken the negative outlook on weekly charts, with another 5-8 cents of upside needed to put the risk of a slide to the $2 mark before year end more firmly on the back burner.

No surprise that the big sell-off Monday and Tuesday of last week included a sizeable liquidation of long positions held by money managers, who continue to struggle with timing this market. The big funds sold off nearly 33,000 net crude and diesel contracts last week, while also adding 28,000 contracts of new short bets, just in time for prices to rally in the back half of the week. The exception to the rule last week was in RBOB futures that saw a small net increase in speculative length for the week. For both the US and European diesel contracts (HO and Gasoil) the net short positions held by hedge funds are approaching record levels, which could be a key contributor to sharp rallies like we’re seeing the past couple of days if the shorts get squeezed out and forced to buy back those losing positions, and any sustained rallies might create a larger shift of funds re-entering the market as the FOMO trade settles in with the notorious bandwagon jumpers.

Baker Hughes reported a net zero change in the total oil rig count active in the US last week, with an increase of 3 rigs in the Permian offset in other basins. The Natural Gas rig count decline by 1 on the week, touching the 3 year low of 97 total active gas-specific rigs.

Another Russian refinery caught fire this morning, but this time it seems like just regular-old refinery dangers may have been at play rather than the drone attacks that have been behind the majority of Russian refinery upsets over the past year. Russia meanwhile continues targeting Ukrainian energy and water infrastructure in its attacks, launching one of the largest missile volleys of the war on Monday.