ULSD Continues To Look The Most Vulnerable This Morning, Already Giving Back 4 Cent Overnight Gains

After a big Friday selloff, energy futures were trying to rally overnight only to see momentum wane once again in the morning hours. 

While stocks and bonds seemed to cheer the weakening labor market Friday, more specifically its potential to put an end to the FED’s rate hikes, energy contracts seemed to pay more attention to another weak reading from the manufacturing sector, and its negative ramifications for diesel demand as ULSD futures dropped a dime on the day.

ULSD continues to look the most vulnerable this morning, already giving back 4 cent overnight gains. There is a descending triangle pattern on the weekly charts that has the potential to send diesel prices back to the lows around $2.30 where they bottomed out last spring, although this pattern is getting long in the tooth, which could negate it completely if we don’t see a break-out in the next week. For gasoline, a break below October’s low trade at $2.15 would set up a good opportunity to see sub $2 gasoline before Thanksgiving.

Saudi Arabia and Russia agreed to extend their voluntary production cuts through year end, which gave crude oil prices a bid overnight, although slowing refinery runs in China and India seems to be keeping a lid on the crude buying for now.

Money managers reduced their net length in most energy contracts last week, with a huge influx of new money betting on lower WTI prices the most noteworthy change in speculative positions.   RBOB was the only one of the big 5 contracts to see an increase in length last week, driven primarily by short covering in what may be profit taking by funds who got what they were looking for in the latest gasoline selloff, and aren’t betting on another big move lower. 

Baker Hughes reported a decline of 8 oil rigs active in the US last week, wiping out 3 weeks’ worth of increases, and lowering the total rig count to the lowest level since January 2022.  There was a notable shift in activity from Texas (which was down 7 rigs on the week) to New Mexico (up 4) with the net change for the Permian basin down 3.  Natural gas rigs have been holding relatively steady for the past month, adding or subtracting one rig/week.

Tough couple of days in Memphis:  On Friday, ENT reported that the Valero refinery would need to perform unplanned repairs at its refinery, then on Saturday a fuel truck caught fire just outside of the loading rack, which forced the terminal to shut down for a couple of hours. 

Meanwhile, Valero Port Arthur and Marathon El Paso refineries both reported tank leaks over the weekend to the TCEQ, but neither event seems to have interrupted production at the facilities.

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