We Are Seeing A Mixed Start To June Trading For Energy Futures This Morning

We are seeing a mixed start to June trading for energy futures this morning as the market digests OPEC+’s production announcement Sunday. The cartel released its intention to continue its voluntary production cuts through September of 2024, but plans to start increasing production on a monthly basis going forward. While this may seem like news enough for energy bears to take action, OPEC+ qualified it’s intent, stating that the initiative could be walked back at any time due to assuming favorable a market environment. Energy futures have flipped between losses and gains several times this morning, with RBOB, HO, and WTI all trading slightly lower currently.

A Reuters article Friday highlighted the EIA’s monthly product supplied report, which showed US demand for diesel fuel reached its lowest level for March since 1998. The report notes that a key driver of that sluggish demand for traditional diesel is the rapid influx of renewable diesel, which is likely distorting actual demand by around 5% since those figures aren’t yet captured in the EIA’s weekly reports.

Money managers added to their net length in WTI, ULSD and Brent last week, but appear to have thrown in the towel on the Spring gasoline rally. There was also some short covering taking place in crude contracts last week after prices dropped to multi-month lows, but Brent continues to hold an unusually large speculative short position which could leave funds susceptible to a short covering rally.

Baker Hughes reported an increase of 1 natural gas rig, offset by a decrease of 1 oil rig drilling in the US last week. The Permian basin rig count was down 2 rigs in total for the week.

A deadly fire broke out at a Lukoil refinery in North Western Russia Sunday, but unlike most newsworthy refinery events this year, this one was apparently caused by negligence and not a drone attack. Russian refinery output is estimated to be down 10-15% for the year due to the rash of attacks, but the world market has largely shrugged off that lack of production as new refineries across Asia in particular are proving more than adequate to make up the difference. Speaking of which, Kuwait’s Al Zour refinery was officially announced as having reached full capacity north of 615,000 barrels/day, which puts it on par with the largest refineries in the world. That facility had already started exporting diesel to fill in the Russian void the past couple of years.

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