Global Rout In Risk Assets Continues

The global rout in risk assets continues Monday with some Asian markets having their worst day in decades, and U.S. equity futures pointing lower by 2% or more. Energy futures are holding up relatively well with buyers stepping in overnight after prices reached multi-year lows.

Refined products were down more than 7 cents at their overnight lows, but have since bounced to only trade down by 1-2 cents on the day. ULSD futures touched their lowest value in more than 3 years during the overnight sell-off, and came within a penny of dropping below the $2 mark for the first time since August 2021. RBOB futures did drop below the $2 mark for a while overnight and are now on track to test February’s lows if the recovery bounce isn’t able to sustain itself.

That one is going to sting: Hedge funds were piling into the Brent crude oil contract just ahead of last week’s wipeout, with over 62,000 new long positions added by large speculators on the week vs 6,600 new short positions, that influx of speculative money put the net length (bets on higher prices) held by money managers at the highest level of the year, just in time to see prices plummet $12/barrel, or roughly 16% in 3 days. RBOB also head faked the money managers adding to net length by 10,000 contracts as prices rallied to a 6 month high, right before dropping 35 cents. There’s little doubt we’ll see a large unwind of that length when this Friday’s report is released as speculative funds made their flight to safety over the past few sessions.

Money managers were also bullish on D4 RINs last week as values jumped above $1/RIN for the first time in 18 months, but saw modest decreases in length in D6 RINs and California and Washington credits.

California’s LCFS credits jumped Friday after California’s Air Resources Board (CARB) released its updated plans to tighten up the program after the state’s legal arm required tweaking in their language. There’s now a 15 day open comment period, after which it’s expected the agency will refile that rule which added 10-12 cents to the cost of compliance for traditional gasoline and diesel fuels this year. The California Energy Commission decided to delay its decision on whether or not to cap refiner’s profit margins until 2026, perhaps in order to decide which refineries will still be functioning, and to be sure they don’t accidentally get a reverse tax if those facilities are actually losing money.

Baker Hughes reported an increase of 5 oil rigs drilling in the U.S. last week, while the natural gas rig count dropped by 7. The Permian basin, which accounts for 60% of the U.S. oil rig total dropped by 3 to 291, marking the lowest count since December 2021.

P66 reported an upset at their Borger TX refinery Friday night in a sulfur recovery unit. Meanwhile, the severe weather that swept a large part of the country the past several days caused an upset at Delek’s refinery in Tyler TX over the weekend.

The deadly flooding that’s following in the wake of those storms will certainly complicate supplies moving up and down the Mississippi river in the coming weeks, but so far no other refineries in the region seem to have been knocked offline.