Money Managers Were Piling Into Crude Oil Contracts As They Rallied To A 5-Month High Last Tuesday
It’s a mixed start to the week for energy markets with ULSD trying to rally, up 2 cents in the early going, while crude oil prices cling to small gains, and gasoline prices show small losses in the early going.
Ukraine shrugged off the reported requests from US officials to stop blowing up Russian refineries, with at least 2 more plants targeted over the weekend, one of which was forced to shut down a crude unit as a result. Estimates vary, but the production taken offline by the refinery attacks so far in March is somewhere in the range of 400,000 to 700,000 barrels/day, which has pushed total output in the country to the lowest in a year. Perhaps most notable about the weekend attacks is that the refineries were more than 500 miles from Ukraine, which highlights the expanding capabilities of Ukraine’s drones.
As expected, Money managers were piling into crude oil contracts as they rallied to a 5-month high last Tuesday. The large speculative category of trader added more than 100,000 contracts worth of net length in WTI and Brent, most of which was new long positions. The net length in Brent is now at the highest level we’ve seen in a year but remains well below the historical levels which suggests the funds have plenty of more money to bet if they choose to do so.
The big funds were also piling into Gasoil (Europe’s version of ULSD) contracts last week, with a net increase of nearly 25,000 contracts, split fairly evenly between new longs and short covering. RBOB contracts also saw a healthy increase in length, although more than 5,000 new short positions were also added with some funds apparently betting that the 6-month highs reached last week will mark the peak of the spring rally. ULSD remains the least favored of all the petroleum contracts, with minimal change last week despite the big move in Gasoil.
Baker Hughes reported a decline of 1 oil rig and 4 natural gas rigs drilling in the US last week. While the oil rig count has seen some modest recovery so far this year, the decline in nat gas rigs last week puts the total at its lowest level since January 2022 as producers struggle with low prices while they anxiously await more export capacity to help US natural gas prices to start approaching those in the rest of the world.
A trio of refinery upsets were reported to TX regulators Friday.
Exxon reported an upset at its newly expanded Beaumont TX facility, although it’s unclear if operating units were forced to slow as a result.
Total meanwhile continues to struggle to get its Pt. Arthur facility back online, more than 2 months after the January cold snap, reporting a leak Friday that forced it to shut down a crude unit.
Valero reported an upset at its McKee refinery in the TX Panhandle, but it appears that only the facility’s flare gas recovery system was impacted so it shouldn’t have a notable impact on output.
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News & Views
View AllULSD Took A Week To Make A Move It Would Have Easily Made In An Hour 2 Years Ago
Energy markets are starting the week moving modestly lower with losses on either side of a penny/gallon for refined products. For ULSD, this would mark a 6th consecutive drop if prices stay negative today, with a total decline of 13 cents during that stretch, 11 cents last Monday/Tuesday and just 2 cents in the past 4 sessions. Another way to look at this, ULSD took a week to make a move it would have easily made in an hour 2 years ago.
While several analysts are suggesting the stock market may get a short term boost from the failed assassination attempt over the weekend, energy markets may be seeing a very minor reaction in the other direction as a Republican president would be more friendly to the industry, thereby allowing incremental supply to reach the market, which lowers prices and is actually bad in the short term for producers.
Hedge funds had mixed activity last week, adding modest amounts of length (bets on higher prices) in WTI, Brent and RBOB via a combination of new longs and some short covering, while the diesel contracts (ULSD and Gasoil) both saw modest reductions. WTI is seeing the most bets on higher prices from large speculators than we’ve seen all year, although it’s well below historical highs, and ULSD has stayed in net short territory for 6 straight weeks.
Baker Hughes reported a net decline of 1 oil rig and 1 natural gas rig active in the US last week, bringing the totals for both to fresh multi-year lows.
Total’s 200mb/day Pt Arthur TX refinery was taken offline Saturday due to a loss of steam, and the company expects flaring to be ongoing throughout the week as they attempt to bring the facility back online. There have not been any other refinery filings to the TCEQ the past 3-4 days, suggesting the restarts after Beryl moved through a week ago are progressing well.
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Falling Gas Prices Have Not Been Good News For US Refiners
Refined products are attempting to find a floor after dropping by more than a dime in the first three days of the week. RBOB futures are trading modestly higher for a 2nd straight day, while ULSD futures are set to snap a 4-day losing streak.
Yesterday’s CPI report brought the first negative inflation reading for a month in 4 years, with lower gasoline prices the main contributor to the decrease. Stock market investors had mixed reactions to the report as the tech bubble looks like it may be starting to burst.
Falling gas prices have not been good news for US refiners that are seeing margins slide close to break-even levels at the time of the year that often brings their best profits. Crack spreads have recovered marginally in the past week but will still be cause for concern as summer starts to wind down.
Russian officials are recommending another ban on most gasoline exports as ongoing attacks by Ukrainian drones, and the upcoming peak demand season are creating concerns over domestic shortages.
Marathon was reportedly attempting restart at its Galveston Bay (FKA Texas City) refinery Thursday after Hurricane Beryl knocked out power to the facility and once again exposed weaknesses in the state’s power grid. A report Wednesday from the Dallas Fed discusses the challenges in meeting the state and country’s growing demand for electricity.
While Hurricanes are the most talked about threat to refineries, heat waves are becoming more of a concern, particularly in Europe as facilities are struggling to maintain steady rates as temperatures rise.
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Refined Product Futures Prices Are Climbing Slightly Higher This Morning, Trying To Turn Today Into Reversal Thursday
Refined product futures prices are climbing slightly higher this morning, trying to turn today into Reversal Thursday and snapping this week’s downward trend. Diesel futures are leading the way higher, gaining 2+ cents to start the day while gasoline follows close behind, trading 1.5 cents over yesterday’s settlement.
The International Energy Agency published their monthly Oil Market Report early this morning, this week’s latest report from the industry’s sundry data reporting organizations affectionately known as Alphabet Soup. The IEA trimmed its oil demand growth forecast citing, generally, slowing global economic activity and, specifically, a decline in Chinese oil consumption. The Agency expands on the latter, attributing its lower demand expectations to factors like the looming real estate crisis in China and the country’s shift towards electric vehicles.
Power has been restored to the section of the Explorer Pipeline going from Houston to Greenville (North Texas) after being knocked offline Monday morning. Group 3 ULSD physical prices reacted promptly to the news yesterday, trading down to 14 cents below the screen. Outages persist in the Houston area where millions are still without power. Tracking said outages is, apparently, difficult for power providers, forcing some Texans to turn to a sacred regional chain for real-time information, adding to the host of reasons for it being the hometown favorite.
The Bureau of Labor Statistics came out with their monthly update on the status of inflation in the US, reporting that it slowed more than expected in June, dropping to 3% annually. While this may lead to the possibility of a rate cut in the near(ish) future, BLS also noted that the third consecutive month of higher unemployment could serve as harbinger for that nasty ‘R’ word.
Four days after making landfall on the US coast, the remnants of hurricane Beryl are still causing headaches, this time brining heavy rains and flooding to the North East. With pipeline outages and minimal refinery hiccups behind us, it looks like energy infrastructure is in the clear, for now, but the sudden appearance of tropical activity off the southern Atlantic Seaboard proves a stark reminder that there is more to come before the season is out.