Look Out Below? Energy And Equity Futures Are Pointed Sharply Lower Again

Look out below?  Energy and equity futures are pointed sharply lower again Tuesday after Monday’s recovery rally started to fall apart in the afternoon hours. Omicron is once again getting credit for most of the selling, after Moderna’s CEO shared a much more pessimistic outlook for the variant than Pfizer’s CEO did Monday.    

It’s the last trading day for December RBOB and ULSD contracts, and at this point, and given the heavy selling and backwardation in the market, we’re likely to see the January contracts take over the prompt position at prices we haven’t seen in 6 months or more. Already January RBOB is trading at $1.96, pushing several cash markets across the US to levels we haven’t seen since the spring RVP transition. ULSD futures meanwhile have already taken out Friday’s low trades, leaving the door open for another big push lower that may see diesel trading below the $2 mark this week as well. 

The pullback in prices, and the post-holiday demand drop has also wiped out the premium to ship gasoline from the Gulf Coast to the New York harbor in just a few sessions. No such relief in ethanol however, as logistical bottlenecks keep prompt prices near the $4/gallon mark even as gasoline prices have crumbled. 

It’s not just consumers who will enjoy the big drop in fuel prices: There was a big increase in new short positions in ULSD, WTI and Gasoil contracts last week ahead of the selloff, which pushed the net length held by money managers lower. A key point to watch this week will be how that length held by hedge funds weathers the selloff, as a mass liquidation often has a snowball effect pushing prices even lower.

With charts continuing to point lower and fear driving the action, the best hope for the bulls this week may come from OPEC, who postponed their technical committee meeting this week to take more time to evaluate Omicron.  The cartel could pause their plans to increase crude output each month to try and stop the selloff, especially since many of its members are struggling to reach their production quotas given the supply chain issues impacting just about every industry in just about every corner of the world.

Speaking of supply chain challenges, a Reuters story this morning suggests things are about to get worse for traditional oil and gas producers as more than 40% of survey participants said they plan to leave their job in the next 5 years, with more than half of those aiming to move into renewables.    

Today is the last official day of the 2021 Atlantic Hurricane Season, which ended with a whimper after a busy start that saw all of the names in the original list get used up. While this season brought us Hurricane Ida, one of the worst hurricanes on record, which continues to have impacts on oil and refined product supplies in the Gulf Coast today, the supply network is breathing a bit of a sigh of relief that things weren’t worse after 18 months of seemingly non-stop disruptions.

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