French Refinery Restarts Apply Mild Selling Pressure

Refined products are seeing modest selling pressure to start Tuesday’s session, while oil prices are holding near break-even levels, as French refineries restart operations after a month of disruptions.

Total said operations were resuming at all 4 of its French refineries, as workers are returning after a month-long strike, while Exxon reported facilities restarting late last week, which appears to be putting downward pressure on futures as the facilities that often supplement US supplies on the East Coast are looking like they’ll be ready for the driving season. There is another nationwide strike planned on Thursday however, so the ongoing saga of people not wanting to work 2 more years will drag on for a while longer.

Money managers have seen a drastic reduction in bets on lower oil prices in the wake of OPEC’s surprise announcement to cut its production target 2 weeks ago, with short positions in WTI and Brent cut in half last week. Large speculators also added long positions during the week, but the net length held remains modest compared to historical levels. Open interest for crude oil contracts has recovered from last year’s big drop when volatility made contracts too hot to handle for many traders, and Brent is seeing more of an uptick than WTI as the new inclusion of US crude into the mix is clearly drawing in new funds. Refined products have also seen a tick higher in open interest but are still noticeably lower today than they were before the war.

Baker Hughes reported a decline of 2 oil rigs and 2 natural gas rigs actively drilling in the US last week. The Total US oil rig count is back to 590, which matches a 9-month low.

While futures continue to be soft, markets across the southwestern US remain extremely tight, with rack prices holding $1/gallon or more over spot markets in New Mexico and Arizona, with Nevada and West Texas markets not far behind.  

The EIA will publish its short-term Energy outlook later this morning, followed by OPEC’s monthly report on Thursday and the IEA’s monthly report Friday. The EIA is slowly incorporating renewable diesel into its reporting, publishing an estimate for RD consumption in the US, that shows essentially all of the fuel was used in California in 2021 since it was worth roughly $1.50/gallon more there than just about any place else thanks to the LCFS and Cap & Trade programs.  

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