News & Views
News & Views
News & Views
Week 13 - US DOE Inventory Recap
March Madness Winds Down With A Whimper
March madness is winding down with a whimper after several volatile weeks of trading. Energy prices are not doing much this morning as traders either stayed up too late watching basketball the past two nights, or are just waiting to see what the OPEC & friends monitoring committee meeting tomorrow brings. A reduction in the cartel’s demand forecast has many in the market believing they’ll roll over their output cuts, but the Saudi’s have been good at not following the script the past several months.
It’s the last trading day for the April RBOB and ULSD contracts so watch the May contracts (RBK & HOK) for price direction today. Futures and spot markets will be completely closed for Good Friday so rack prices should carry through from Thursday night’s posting all the way until Monday, unlike some recent partial holidays that saw big moves in futures and suppliers changing rack prices.
RIN prices continued to sell off heavily this week, assisted by another big mover lower in soybean oil prices, after they surged to eight year highs earlier in March. Here are a few interesting reads on that subject:
And here’s why they should keep falling
Soybeans might be in your tires, in addition to your fuel tank (not to mention on your plate)
Another potential influencer of the recent RIN rollercoaster? Big swings in ethanol production. An EIA note this morning shows that it wasn’t just oil refiners that suffered from February’s polar plunge. The report shows a dramatic drop in ethanol production due to surging natural gas prices followed by a rapid increase in output as producers took advantage of surging prices for both ethanol and their RINs.
Speaking of ethanol production, a facility in California that uses cow waste to produce ethanol received approval from the ARB of a new fuel pathway with a carbon intensity (CI) score of negative 426, compared to traditional ethanol with a score of positive 66. What does that mean? The new pathway has a negative carbon footprint, and thus generates .06 LCFS credits per gallon, which at current prices around $187 per MT, the producers can generate nearly $12/gallon worth of credits under California’s LCFS program.
There have been numerous stories in the past year about China’s growing refinery output, which has now outpaced the U.S. A Bloomberg note this morning shows how those new plants are hammering margins and squeezing out other Asian producers. On the other hand, it does not appear that China has a program paying $12/gallon for fuel made from manure.
Rollercoaster Ride Continues For Energy Prices
The rollercoaster ride continues for energy prices, although it seems to be a pared down version so far compared to the huge swings we saw last week. An OPEC meeting, new COVID restrictions, the Suez Canal and equity market drama are all getting some credit for the recent run-up in volatility.
The great refinery restart seems to be entering its final phase, as more units return to operation, and markets across Texas have seen their supply levels get closer to normal. It will probably take another week or two for those supplies to make their way through the Colonial system, but we’re already seeing spot and rack spreads from the southwest to the southeast collapsing as the risk of runouts diminish.
The Suez Canal was cleared on Monday and more than 100 ships are estimated to have transited the waterway in both directions since the ship was finally floated, thanks in large part to the moon. It will take several more days to clear the backlog of ships, but it seems like the market has already put this situation in the rearview mirror.
A new 25 year agreement between China and Iran looks like it will be bearish for oil prices, as it will allow Iran to circumvent U.S. sanctions and bring more of its oil to market.
The EIA this morning published a look at U.S. retail gasoline prices, which are up $1/gallon from a year ago, after seeing their longest streak of weekly increases in 25 years.
Today’s interesting read: How the big Ag companies are positioning themselves to benefit from the Renewable Diesel production boom. The spike in soybean oil prices caused by this phenomenon is getting much of the credit for the recent run up in RIN prices, although they’ve seen a big pullback in the past week as bean oil prices pulled back from 9 year highs.
There were plenty of stories about a sketchy hedge fund blowing up and creating unprecedented margin calls that forced huge stock sales over the past couple of days. It appears that there was not any direct connection to this situation and energy companies or commodities in general, so it’s unlikely it contributed to the wild price swings we saw last week, or the junior version of them we’re seeing so far this week. That said, when fear starts to drive the price action, the correlation between energy and equity markets often gets stronger, so there could be an influence if the unrest starts to spread.
Weaker Equity Markets Give Traders Reason To Pause
RBOB gasoline futures are trying to lead the rest of the energy complex higher to start the week, but oil and diesel contracts seem to be reluctant participants so far as weaker equity markets give traders reason to pause. Last week’s rollercoaster ride left energy contracts stuck in technical no-man’s land with just three trading days left in the month.
Progress was made overnight in the Suez Canal as the ship that’s been stuck was partially refloated overnight and could be completely freed later in the day. It could still take days to complete the operation and restart the shipping lanes, but the progress suggests the disruption will be counted in days and not weeks. This situation has also highlighted other challenges with shipping logistics during the pandemic as ports on the West Coast have become back logged, and hundreds of thousands of sailors remain stranded at sea.
Money managers cut back their length across the board following what looks like it might be a seasonal top in prices set two weeks ago. WTI and Brent contracts also saw a substantial increase in new short positions, and a large drop in open interest, suggesting the large speculators are ready to bet that the rally is over. The COT report data is compiled as of Tuesday so those new shorts were put to the test right away with the rollercoaster ride in the back half of the week.
Meanwhile, there’s a new competitor to the WTI and Brent crude contracts as Abu Dhabi launches trading in Murban oil futures today. The contract aims to shake up the benchmarking of middle eastern prices, and is backed by substantial physical delivery capabilities.
Baker Hughes reported six more oil rigs were put to work last week, five in the Permian and one in the Williston basin. The count is now at the highest level since May of 2020, but is still 300 rigs short of where we were just one year ago, a reminder of how dramatic the shutdown was last April.
Lots of headlines about a major oil refinery fire in Indonesia overnight. The photos and videos are no doubt dramatic, but the plant is relatively small (125mb/day) and the operating units reportedly escaped damage so it should not have an impact on prices in other regions.
Volatility Returns To The Energy Arena
March madness is not disappointing this year as volatility returns to the energy arena, making 5% price swings a common occurrence. This week’s action has been a rollercoaster with huge selloffs Tuesday and Thursday surrounded by strong rallies Monday, Wednesday and Friday that have kept the selling that started last week from snowballing into an outright price collapse.
When this type of wild back and forth action happens, it helps to look at the weekly charts to get a sense for the bigger picture, and to see that despite multiple days of 8 cent or greater moves, ULSD futures are only down 2 cents on the week, while RBOB prices are up 1.5, and those small net moves have done little to change the technical outlook going forward. That said, this type of manic price movement is often seen at the end of a trend, so there’s still a strong case to be made that after a huge rally from November-March, lower prices are coming, and could be here soon if chart support breaks next week.
The Suez canal blockage continues to be a major story this week, with new estimates suggesting it may take weeks not days to clear the stranded ship. While that continues to be an easy headline to pin the blame on a rally, it doesn’t explain why oil and product prices 6 months forward are rallying about the same amount this morning.
On the flip side, European COVID lockdowns are the easy smoking gun for the days when prices collapse, even though it would be hard to justify prices 1 year forward dropping due to those temporary measures. The drop in European demand should also help limit the fallout from the Suez canal blockage that’s keeping some 3 million barrels/day of oil and refined products stranded at sea.
There does seem to be a “risk on” vs. “risk off” feel to the wild back and forth this week, even though the correlation between daily price moves between equity, currency and energy markets is almost non-existent.
Today’s refining lesson: Don’t rain oil on your neighbors. The EPA announced it was pulling an expansion permit for the Limetree Bay (FKS Hovensa) refinery in St. Croix after multiple lawsuits filed to challenge its restart. It’s important to note that decision will not halt operations at the refinery, but will make expansion a challenge, and given the events of the past two months feels like just the start of the regulatory changes coming. For those that were around when Hovensa was operating, its location and ability to import barrels all along the U.S. East Coast often gave its operations an outsized influence on (NY Harbor based) RBOB and ULSD prices.
The Dallas Fed’s energy survey for March showed a strong recovery in oil and gas operations as producers that had been on the brink for much of the past year took advantage of the rally in prices. Continued expansion is predicted in the survey results, and the chart of break evens shows that we should see operations continue to increase with just about all basins securely in the black at current price levels.
Los Angeles has revealed a study that would allow it to use 100% renewable energy sources to power its electric grid by 2035, even as it remains one of the only coal burning municipalities left in the state. The plan is simple: “Build solar farms, wind turbines and batteries as fast as possible.” The plan to pay for it is: not part of the study.
Fuel Prices And Renewable Credits Face Whiplash
It’s been a busy month worth of trading this week as fuel prices and renewable credits all face a bout of whiplash. Gasoline and diesel contract managed to wipe out Tuesday’s big losses that approached 10 cents in many markets with even larger gains Wednesday, only to start Thursday’s session dropping back 5-6 cents.
The blockage of the Suez canal got way too much credit for Wednesday’s big price rally, as the issue is expected to be cleared by the weekend, and should not have any long term impacts. If the event was the main driver of the price action during the rally, we would have seen time spreads strengthen, reflecting the short term supply crunch, which just didn’t happen as prices were up big across the forward curve. Want another reason why that probably wasn’t why prices rallied yesterday? The ship is still stuck this morning and prices are down 3%.
The DOE’s weekly report showed that the great refinery recovery continues, but Gulf Coast (PADD 3) runs are still 800mb/day below where they were prior to the polar plunge. Plants in other regions are taking advantage of the disruption, with East & West Coast refiners increasing rates to their highest levels in a year to capitalize on the (recently) rare window to make healthy margins caused by the widespread outages and slow recovery.
Gasoline imports remain nearly 2X normal levels for this time of year as replacement barrels for those lost from downed refineries are arriving. That phenomenon may help explain some of the strength in RIN pricing over the past month as those imported barrels require purchasing a full slate of RIN codes to comply with the RFS.
Demand estimates from the DOE were sluggish last week – and certainly didn’t help explain the big price jump following the report – with distillate consumption dropping sharply over the past two weeks while gasoline has stagnated.
An EIA report this morning highlights the vastly different refining landscape in the U.S. – which for decades has been the world leader in refining – and China, which surpassed U.S. output for most of 2020.
Week 12 - US DOE Inventory Recap
Significant Haircut For Refined Product Futures
Refined product futures had a significant haircut yesterday as prompt month gasoline and diesel contracts settled over six cents and eight cents lower, respectively. Crude grades saw similar selling pressure, both American and European grades coming off over $4 per barrel by the end of the online session Tuesday.
The Environmental Protection Agency has officially extended the compliance deadline for obligated parties under the Renewable Fuel Standard for 2019 and 2020. The news comes as a relief to some, and a given to others, since as compliance requirements are still undecided. Ignoring what could be seen as bearish news, both ethanol and bio RINs tacked on eight cent gains yesterday, lending credit to the notion that price action in the underlying feedstock drives RIN prices.
The buyers are fighting back this morning with prompt month crude and diesel futures pushing to stay above their respective 50-day moving averages. A grounded container ship holding up through-traffic in the Suez Canal seems to be taking credit for the bump in prices this morning. While only a temporary blockage, expected to be resolved tomorrow, it might be enough stimulus to buoy some recently rather bearish technicals.
The 4.5 month long rally was broken with last Thursday’s selloff (leaving the big three energy contracts with 5-6% losses) but the subsequent see-saw in price action makes it seem that we will see some choppy waters ahead while the complex decides if it wants to continue its upward climb or revert to last November’s levels.
Fear Takes Control After Months Of Hope-Fueled Trading
After months of hope-fueled trading, fear seems to be taking back control of the price action as equity and energy markets both face selling pressure this morning sparked by new COVID outbreaks and their accompanying lockdowns.
The charts look treacherous for petroleum contracts, with a drop to the $52 range for WTI – which would mean another 15-20 cents of downside for refined products – looking likely if prices settle below last week’s low trades.
The irony of this sell-off is it’s coming at a time when supplies for the Atlantic coast, which is home to the Nymex delivery hub for RBOB and ULSD futures contracts, is facing multiple supply disruptions from unrelated pipeline issues. Buckeye’s line in New York still remains down after last week’s spill, and Colonial’s line into New Jersey is running at reduced rates due to a lack of push stock from the Gulf Coast, causing premiums for offline barrels in the region to soar.
After a big selloff last week, RIN prices made a strong recovery Monday rallying by nearly 10 cents for both D6 and D4 values. That bounce means the trend that’s added more than $1/RIN since August is still alive and well. That said, RINs will face a big test today as the drop in petroleum prices will tend to put downward pressure on those values as the relative value for imports and exports will change with the spread between products.
Oil industry executives joined a virtual meeting with the President Monday and supported an plan to put a price on carbon emissions as a way to combat climate change. There’s still no clear plan for what that might look like, but a priority for the industry is to push towards a unified market, rather than the segmented requirements that are popping up now around the world. Speaking of which, the fledgling RGGI program attempting to band North East States together in a climate pact to reduce emissions from the power sector saw prices for its CO2 credits reach a new high in March according to a new EIA report.
Worst Week Of Selling In Nearly A Year
Energy prices are struggling to carve out a bottom after the worst week of selling in nearly a year finally broke the momentum of the 4.5 month old price rally.
Another drone attack on Saudi oil infrastructure failed to stir the markets much overnight as it appears the damage was limited again, and because the country is still sitting on excess capacity trying to keep prices propped up that acts as a buffer to any short term disruptions.
Every time it feels like the Polar Plunge-driven supply disruptions are being put in the rearview mirror a new report surfaces that shows the challenges are continuing. On Friday it was a report that Colonial was still struggling to move products along its system due to a lack of supply coming from Gulf Coast refiners to push the other barrels further along the line. That news suggests the supply tightness may be shifting east, and more allocations along the Atlantic coast can be expected this week.
Baker Hughes reported an increase of nine drilling rigs active in the U.S., with most coming from the Permian (5) and Eagle Ford (2) plays. It’s worth noting that New Mexico saw an increase of seven rigs last week, which may mean drillers are focusing on getting what they can from that state before the anticipated closure of Federal lands to new drilling activity.
The increase in activity across West Texas and New Mexico is exacerbating the challenge of resupplying the region with diesel after the rash of refinery closures, with rack prices in the area still holding near two year highs relative to USGC spot prices. That means shippers are facing an interesting tug of war between sending diesel east along Colonial or West to the drilling region, and could mean both areas stay tight for longer than if demand hadn’t started to increase just in time for supply to collapse.
Some large funds probably want a do-over after increasing their net length on WTI, RBOB, ULSD and Gasoil contracts – much of which was caused by short positions throwing in the towel and liquidating – just before prices had their biggest selloff in 11 months. The big speculators were doing better in Brent contracts that did see a reduction in net length (bets on higher prices) in last week’s report, which has positions compiled as of Tuesday.
Want to feel better about your job? Read this story of how disputes between commodity traders and shipping companies has left hundreds of thousands of mariners stranded at sea.
RIN prices continued to see heavy selling Friday, with both D4 and D6 prices down roughly 18 cents after approaching all-time highs to start the week, which has limited the benefit of rising crack spreads for refiners. There doesn’t seem to be news coming from Washington to drive the reversal, but the EPA did reboot its climate change website last week, and asked viewers to stay tuned until there’s actual content to view. Meanwhile, in the other Washington, a push to create an LCFS program similar to California’s has come under challenges from a “scientific” studies suggesting that bio and renewable diesel combustion do not lower pollution levels as advocates suggest.
Let The Madness Begin
Let the Madness begin.
This is what it looks like when a market has one of the strongest rallies in its history, outkicks its coverage, and then finally breaks its upward trend. Most petroleum contracts had their biggest single day sell-off in 11 months (you know, since the day oil prices went to minus $40/barrel) after chart support finally gave way and created a snowball effect of selling.
Gasoline prices are down 26 cents from the highs set Sunday night, and distillates are down more than 20 cents, with both appearing to have more room to fall over the next week based purely on the charts. The next stopping point on the weekly chart for RBOB looks to be in the $1.80 range, while ULSD looks like it could make a run at $1.60 before reaching its next cluster of support, which held prices for several weeks back in January.
There are also some fundamental reasons for the drop, as more signs of healing emerge from refining country and supply allocations begin to ease across much of the south. The pipeline spill in New Jersey this week is still creating headaches for physical supply in the immediate area, but that has little bearing on futures prices, and the disruption appears to be contained to a few local terminals.
Chicken or the egg? RIN values dropped 12 cents for both D4 and D6 contracts, getting close to the moves in both gasoline and diesel on the day. Some will suggest the sell-off in RINs happened before the move in refined products, suggesting some of the unwind may have been reversing the Stronger RIN/Stronger Crack spread needed trade that’s been prevalent over the past month.
Today’s interesting read: A recap of the lawsuit scheduled to go before the supreme court this summer that may well determine the long-term direction of RIN prices.
Today’s other (slightly less) interesting read: An EIA note detailing why jet fuel consumption in the US will take a decade to recover, even though air travel should pick up soon.
If you’re wanting to get something done today, make sure you get it done by noon, since once the Tournament starts, these markets tend to go quiet in a hurry.
Energy Complex Under Pressure
Under pressure: The energy complex is facing another wave of selling for a fourth straight day, and the trend-lines that have held up prices for 4.5 months are finally facing a real test. If that support holds, this week’s sell-off may soon be forgotten, but a break down here sets up another 20-30 cents of downside potential for refined products as they correct one of the largest rallies in history.
RBOB futures did trade higher through most of the night, thanks at least in part to reports of a gasoline spill that forced the buckeye pipeline to close one of its lines that feeds the NY harbor area. The line that’s closed primarily delivers to Long Island, and so far it doesn’t seem to be impacting flows around the NYH trading hub, so that impact should be minimal unless the damage is found to be more widespread. Separate reports that one of the last standing refineries on the East Coast was forced to shut several units for unplanned repairs also helped give gasoline prices a boost overnight, but those gains have not lasted, and RBOB futures are now trading nearly 14 cents below the highs set Sunday night.
According to the DOE’s weekly status report there is still roughly 1.5 million barrels/day of refining capacity in the Gulf Coast offline from where run rates were prior to the Polar Plunge in February. The recovery from that event is now taking longer than what we’ve seen in even the most severe hurricanes of the past 20 years, as the impacts were much more widespread, and most plants did not start shutting down operations ahead of the storm, meaning more damage was likely when they were knocked offline. There are also reports that some plants decided to move up maintenance since the facilities were down anyway, which is probably contributing to the slow recovery. While PADD 3 runs still have plenty of room to recover, PADD 2 run rates have already reached pre-storm levels and PADD 1 refiners have increased rates to Pre-COVID levels, taking advantage of the better margin environment. West Coast (PADD 5) runs are holding steady, while PADD 4 runs remain not much more than a rounding error.
If you’re reading this, you’re probably not using Microsoft Office 365, which published a root cause analysis of the major outage that affected Outlook & Teams and (even worse for the Gen Z crowd) Xbox live nationwide. If it doesn’t make sense how they can publish a root cause analysis on a problem that as of this morning hasn’t been solved, you’re not alone, but don’t worry they’ll keep telling us it’s fixed. In the meantime, if you’re missing a quote or another regular email, please verify with old school methods like texting or tweeting.
Week 11 - US DOE Inventory Recap
IEA Increases Global Demand Forecast
No luck for the bulls so far this morning as the energy complex is facing a wave of selling for a third straight day. RBOB gasoline futures are once again leading the move lower, after a furious late day rally briefly pushed gasoline prices into positive territory Tuesday, only to fall back into the red just before settlement. Some technical analysts view a failed rally attempt like we saw yesterday as a bearish signal, since buyers are unable to gather enough momentum to end the day on a strong note, and that theory is looking good at the moment, now we’ll see if it lasts the day.
This selloff has ULSD futures roughly three cents away from the trend-line that’s held the rally since November 1, while RBOB futures will need to break below $2 this week in order to follow suit. Whether or not we see prices break that trend will likely be pivotal in determining if the $2.17 mark set early Monday will prove to be the high trade of the year. If so, we’d expect another 20-30 cents of downside on gasoline prices if the seasonal rally unwinds like it does most years.
The IEA increased its global demand forecast in its latest monthly oil market report, but also suggested that the spare capacity of oil production sitting on the sidelines was more than capable of handling that increase. The IEA report seems to throw cold water on recent Bank reports suggesting a new commodity supercycle that will send oil prices much higher in the coming years.
The API reported more pedestrian changes in inventory levels last week, in comparison to the past two record setting weeks. Crude & Gasoline stocks were both down around one million barrels, while distillates grew by a little under one million barrels. The DOE’s weekly report is due out at its normal time this morning, with the refinery runs the key figure to watch as it’s still hard to decipher what units at what facilities have returned to normal levels after the February freeze.
Supply allocations, particularly for diesel and premium gasoline grades, remain tight across the southern half of the country, with occasional outages continuing to pop up from New Mexico through the South East. Easing cash market differentials in most regions besides the West Coast suggest that resupplies are on the way, but it will probably be about another week or more before the markets further from the refining hubs start to feel some relief.
RIN prices seem to be catching their breath after a strong rally that approached all-time highs Monday. The AFPM sent a letter to the EPA urging it to act since the spike in prices, which it argues are partially caused by the agency not meeting its deadline to set obligation levels, are threatening to put more refiners out of business. A change in stance from the EPA back in 2013 helped RIN values drop by more than $1/RIN, so any reaction or lack of from the agency will certainly be market moving news.
Energy Complex Still Faces Selling Pressure
The energy complex is facing selling pressure for a second straight day after it appears the RBOB rally finally ran out of steam Sunday night. The selloff is happening despite the S&P 500 reaching fresh record highs, as the correlation between daily price movements in the equity index and energy futures has dropped to its lowest level in a year this week.
RBOB futures are now eight cents below the three year high set in the overnight session, but the gasoline contract is lagging the others in the sell-off so far this morning. As the chart below shows, even with the big pullback this week, the bullish trend lines are still intact for now so it’s too soon to call an end to the rally.
A pattern is emerging in the refinery restart races, each day brings stories of a few new units brought online, and one or two reports of other units that will need more time to fully recover from the damage done in February’s cold snap. The diesel basis chart below is a microcosm of that impact, with the market not nearly as tight as it was two weeks ago, but still needing to do a lot of work to get back to normal levels.
Money managers that had shorted energy contracts were getting squeezed out last week, which pushed the net length higher for WTI, HO, RBOB and Gasoil contracts. Only Brent saw a reduction in net length (bets on higher prices) on the week. Refined products also saw some new length added, suggesting that large speculators are still will to bet that the rally can continue, even after prices have already doubled in the past 4.5 months. Open interest in crude oil contracts is increasing, reaching its highest levels since the chaos of last April when WTI went negative, in what’s likely a sign of the expectations for economic recovery, and/or for inflation, in the months ahead.
The Dallas FED’s mobility index shows that movement across the U.S. is at its highest levels since the lockdowns began a year ago. Texas shows to be leading that move higher as the state reopens, just a month after movement dropped to levels worse than the depths of the quarantine lockdowns due to the Polar Plunge. With warmer weather ahead and both drilling and refining activity picking up, we should see this strengthening trend continue in the coming weeks.
Gasoline Prices Touch Fresh Three-Year High
The energy complex is seeing a modest round of selling Monday morning, after gasoline prices touched a fresh three year high overnight. Diesel prices were leading the move lower initially, after ULSD futures failed to break above the highs set a week ago, and signaling that buyers may finally be losing their conviction after one of the largest rallies on record. We’ll need to see another 5-6 cents of losses before the bullish trend line is threatened however, and with the recent buy-the-dip pattern well established, it’s too soon to see this as more than just another small correction.
RBOB futures broke through the highs from 2019 Friday morning, ending the chance of a double top pattern at that level, and set a new, three year high at $2.17 before pulling back in the past few hours. The next big test on the gasoline charts is the 2018 high of $2.2855, and after that we’d need to 2014 when prices were still in the $3 range to find major chart resistance. Given the spare oil and refining capacity globally, it seems unlikely that we could make a serious run at the $3 mark, but then again, when priced dipped below $1 November 1 it seemed unlikely we’d see prices double over the next 4.5 months.
No major developments in the refinery restart races. Diesel remains tight across large portions of the southern U.S., while regular unleaded is generally well supplied. One complication popped up Friday as Colonial pipeline reported that the slower flow rates caused by refinery cuts along the Gulf Coast may mean shippers in the South East may struggle to turn their tanks ahead of the spring RVP transition.
RIN prices continued their run higher Friday, with both the D4 and D6 contracts trading near all-time highs north of $1.40. Ethanol prices have quietly joined the rally reaching new three year highs, as strong export volumes and corn prices both add to the bullish tone set by gasoline prices. One thing this new RIN rally may encourage is for E15 blends to finally find some momentum in locations capable of handling them since there’s a strong financial incentive to blend more ethanol given the big RIN discounts at play.
OPEC increased its global GDP and oil demand estimates in its March oil market report, thanks in large part to the viral spread of fiscal stimulus around the world, in addition to vaccine rollouts that are beginning to get people moving again. The cartel’s output dropped by 647mb/day during the month, as Saudi Arabia made good on its pledge to cut around one million barrels/day of output, which allowed other country’s to increase their output and take advantage of the higher prices. Even though the OPEC & friends agreement was not changed at the last meeting, Saudi Arabia has no obligation to continue that extra million barrel cut, and the timing with which it brings those barrels back online could be pivotal for prices across the entire energy complex.
In other non-restart refinery news today: More bad news for the Limetree Bay (FKA Hovensa) refinery as it comes under more scrutiny from the EPA, this time for a February disruption that polluted water in neighboring communities. Neste has announced it has picked the port of Rotterdam as the site of a new renewable fuel production facility it intends to build, but won’t have more detailed plans on the exact location or timing until the end of the year.
Hope Has Never Been Higher In The History Of The RBOB Market
A year ago today gasoline prices dropped from $1.10/gallon to $.85, as traders awoke to the reality that the country was about to be placed on lockdown. What a year it’s been.
If you only watched futures prices, you’d think the country was facing a severe gasoline shortage now as RBOB prices have spiked to a 2 year high this week, even though in reality it’s diesel supply that’s facing shortages across large parts of the US. We are in the window of the typical spring gasoline rally however, and it’s safe to say hope has never been higher in the history of the RBOB market as the vaccines are finally shining a light at the end of the COVID tunnel.
On top of the seasonal and emotional influences, RIN markets seem to be having a noticeable influence on pricing, as product prices need to move higher just to offset the increased cost of compliance with the RFS for refiners. RIN values are approaching their all-time highs this week with trades just a few cents away from the record spike we saw in 2013. As the chart below shows, not long after trading near the $1.50 mark in 2013, prices plummeted by more than $1.20 per RIN as the EPA finally acknowledged the blend wall that made the RFS mandates physically impossible to reach. Will it be different this time around? That will likely depend on how the supreme court rules this summer on refinery & environmental waiver requests.
Double Top? As of this writing, the high trade for RBOB is $2.1559, which matches the high trade from April of 2019 to the point, and could create a nice symmetric stopping point for the 4.5 month old rally that’s added nearly $1.20 to gasoline prices. If that plays out, we should see gasoline prices drop 30 cents or more, for no other reason than that’s what they normally do each year whenever the spring rally finally stalls out. That said, there’s a good chance based on the upward momentum that we see prices move through that resistance, which would open the door for a run at the 2018 highs in the $2.28 range.
The refinery recovery continues with improvements coming daily, but still more outages expected over the next week as the system refills. Basis values and rack spreads are returning to more normal levels as the consensus from physical traders is that the worst of the disruption is behind us and it’s just a matter of time until things settle down. Colonial pipeline is reportedly still slowing its line 2 due to limited diesel supplies, and maintenance activities, which will keep terminals all along the SE tight for at least another week.
Drama in index land? Planned changes to add WTI pricing to the Brent oil index have been delayed after the industry rejected the plan. Given the long history of the parent company’s ability to make huge sums of money for index subscriptions, whether or not they’re grounded in reality, there’s little doubt that a new plan will be launched soon.
Stimulus Package Encourages Buying Across Asset Classes
Gasoline futures are trying to lead the energy market on another rally this morning, approaching two year highs and pulling the rest of the complex towards healthy gains. Crude oil and diesel prices are both moving higher on the day, but are still a couple percentage points away from reaching fresh highs of their own. The broader market has a risk-on feel as the $1.9 Trillion stimulus package seems to be encouraging buying across asset classes.
The DOE’s weekly status report Wednesday showed that refiners still have a long way to go to resume output levels to what we saw before February’s polar plunge, while crude oil producers have already returned to “normal” production levels. Refined product inventories remain tight across much of the country as the restarts continue to drag on, and demand picks back up. Diesel demand estimates in particular stood out last week, with the DOE estimating consumption at the top end of the five year range, which makes you wonder how strong it will get later this year once more businesses resume normal activity levels.
Michael Regan was approved by the Senate to lead the EPA Wednesday, a vote that garnered bipartisan support with a 66-34 vote. While Regan hails from a state that’s relatively neutral in the Big Ag vs. Big Oil battle known as the Renewable Fuel Standard, the market is sending clear signals that they expect the new administration to favor biofuels over fossil fuels. Regan set his priorities for the agency during the hearing:
Our priorities for the environment are clear: we will restore the role of science and transparency at EPA. We will support the dedicated and talented career officials. We will move with a sense of urgency on climate change, and we will stand up for environmental justice and equity,"
While it’s hard to argue that expectations for the new EPA to be tougher on refiners has contributed to the spike in RIN prices this year, there are also fundamental factors at play.
A surge in gasoline imports (that requires buying of RINs) and ethanol exports (that requires RINs be retired) both seem to be bullish factors in the recent D6 RIN run-up. For bio RINs, the surge in Soybean & Soybean oil prices to eight year highs points to the challenges producers will face in the coming years to find adequate feedstocks to produce their fuel.
While nothing seems to be slowing the RIN rally at the moment, it’s worth mentioning with the administrator highlighting the role of science as a priority that the National Wildlife Federation has challenged the legality of the RFS. The NWF argument provides evidence of severe environmental harm caused by excessive fertilizing, water usage and pollution caused by incentivizing farmers to turn marginal crop & wetlands into soybeans and corn that can be turned into fuel. That waiver petition is joined with the petitions of severe economic harm issues by refiners that will soon be argued in front of the Supreme Court.
Long String Of Price Bounces
Energy futures survived yet another attempted selloff overnight, with refined products trading up modestly this morning after moving lower by around three cents overnight. The latest in a long string of price bounces continues to encourage the “buy the dip” crowd, and keeps the bullish trend intact for now.
The EIA’s short term energy outlook raised the expectations for U.S. GDP growth in 2021 by 1.7%, as the economy is now expected to recover at a much faster rate than was predicted just a month ago. Despite the increase in growth, the EIA still predicts that global oil supply growth will outpace demand in the back half of the year as idle capacity is brought back online around the globe. The STEO highlighted the role a weaker U.S. dollar has played in oil prices rising over the past several months, failing to explain why priced have continued to go up even as the dollar has surged in recent weeks.
The analysts also mentioned the rally in refinery margins, but failed to note the relationship that near-record RIN prices may be having on those spreads, and instead blamed it on “expectations of higher gasoline demand and subdued supply, likely contributed.” In other words, they don’t really watch the market much at all. One interesting piece of data aided by the dramatic refining impacts of February’s polar plunge, was that “the United States will be a net importer of 0.2 million b/d of gasoline in March, which would be the first time the United States is a net importer of gasoline in March since 2015.”
The API reported some huge figures in its weekly inventory report, as the industry group’s estimates catch up to the record-setting DOE data we saw a week ago, and numerous refinery issues continue to linger. Crude supplies were reported to increase by 12.8 million barrels on the week while gasoline stocks declined by 8.5 million barrels and distillates dropped by 3.8 million. The DOE’s weekly report is due out at its normal time this morning and we “should” see a bounce back in refinery runs after they smashed the record for lowest run rate percentage last week, but it’s hard to say by how much given the various false-starts reported as plants started coming back online. A Bloomberg report said that as of Monday, just 7 of the 18 refineries shuttered by the February cold snap are operating normally.
Diesel basis values are starting to return to normal amidst signs that the worst of the supply squeeze is behind us. Group 3 ULSD basis values in particular began their return trip to earth, dropping 20 cents so far this week from Friday’s high trade, but still commanding a healthy premium to neighboring markets as inventories in the region remain tight. Even as the panic buying appears to have subsided, ULSD supply continues to be tight across many U.S. markets. Short term runouts are still expected across the South and up the East Coast over the next week because Colonial pipeline still doesn’t have enough push stock coming from the Houston area to run the pipeline at full rates.
Unfortunately Colonial Pipeline is making headlines for other reasons this week as reports about last year’s gasoline leak in North Carolina reveal that the spill was much larger than originally reported, and was in fact one of the largest spills on record. Numerous follow up reports are coming out trying to explain how that could happen, while the risks of an old pipeline being so critical to the country’s fuel supply have been known in the industry for years. One interesting note is that reports suggest the pipeline is using the current slow shipping environment to perform maintenance on parts of the line that would be more challenging – if not impossible – when the line is running at capacity.
Today’s interesting read: Why it pays to know your counterparty in commodity markets.
Four Month-Old Bullish Trend Alive And Well
Energy futures were bouncing back early Tuesday morning after their first day of selling in a week wiped out the new year + highs set Sunday night. The upward momentum seems to have stalled out however, as product gains have been slashed and WTI has ticked into the red in the past few minutes.
The four month old bullish trend is alive and well, and the bulls will argue that OPEC’s decision to hold output cuts even though prices are higher now than they were pre-COVID, coupled with the vaccine allowing economies to restart should keep prices moving higher. Bears will argue that after nearly doubling prices since November 1, this rally has outkicked its coverage, consumption will need years to return to pre-COVID levels, and rising fuel prices will not help economic activity recover.
If we see yesterday’s overnight highs broken later this week, the bulls look to have clear sailing on the charts for another 5-10% of upside, while the risk for a real correction remains as long as we stay below those levels.
Stocks are pointing higher and the U.S. dollar is trading lower, both of which will typically help encourage higher energy prices, even though the correlations between those asset classes has weakened in recent weeks.
It’s two steps forward, one step back in the great refinery restart races with new units coming online daily, while others are failing in their restart attempts and having to push back their forecasted resupply dates.
While the bumpy recovery continues, a new problem has started to emerge: oversupply of regular gasoline grades in several markets are blocking shipments of diesel and premium gasoline in the pipelines, and exacerbating those shortages. This phenomenon was also prevalent for a few weeks last spring when COVID shutdowns hammered gasoline demand while distillate consumption held relatively strong, and will continue to give suppliers headaches for at least another week or two. Since Colonial pipeline operates separate mainlines for gasoline and distillates, this phenomenon “should” not spread to the East Coast, and the push stock needed to get those lines back on schedule are expected in the next week or two.
The EIA this morning highlighted the record decline in U.S. Oil output in 2020, with the Gulf of Mexico and North Dakota leading the production declines. New Mexico was one of the few states that saw an increase in oil output as production in the western half of the Permian heated up pre-COVID. While most production is expected to increase this year thanks to the rapid recovery in prices, New Mexico is expected to see declines soon due to the expected restrictions on Federal Lands.
Two interesting reads from Reuters, both of which suggest the food vs. fuel debate is destined to be back in the headlines this year.
The coming feedstock wars as refiners race to make more renewable diesel.
The boom in U.S. Ethanol Exports heading to China. This surge in exports could help explain some of the recent rally in D6 RIN prices, as exporters are required to retire RINs within one month of the export event.
Big Reversal Underway In Energy Futures
A big reversal is underway in energy futures that are trading lower this morning after an overnight price spike. So far, the selling is relatively minor, and hasn’t threatened the upward-sloping trend lines that have held this rally for more than four months. While a pullback is warranted given the markets’ overbought condition, we saw multiple similar selloffs fail to pick up steam in last week’s big rally, and we’ll need to see product prices dip another nickel or more before we can say this time is different.
News that the Houthi rebels had launched another coordinated missile and drone attack on Saudi Arabian oil assets Sunday had the market spiking overnight, with oil prices up $2/barrel and products up more than 4 cents/gallon. All contracts reached new 12+ month highs in the overnight session, with WTI trading at its highest level since October 2018 and RBOB reaching its highest since April of 2019. The gains proved short lived however as the Saudi facilities are reportedly continuing to operate with minimal disruption, giving buyers reason to doubt the sustainability of current prices after the furious rally in recent weeks.
The great refinery recovery is progressing, with multiple units reported to be initiating restart over the past few days, but supplies remain tight across the gulf coast, causing some slowdowns in pipeline batches that is causing more markets across the country to feel the impact of February’s polar plunge. Rare shipments of gasoline from Europe to the U.S. Gulf Coast are in route, and should help keep the runouts contained.
Money managers are starting to build short positions in WTI and RBOB, cutting the net length held in those contracts modestly on the week. ULSD is a different story with a large increase in new length added last week, betting on higher prices even though diesel values have already nearly doubled in the past four months. The CFTC’s report data is compiled on Tuesday, which means the new shorts got a rude welcome from the huge rally in the back half of the week while the diesel buyers were rewarded.
Baker Hughes reported a net increase of one oil rig drilling in the U.S. last week, with the Permian basin adding three rigs, the Barnett adding one (its only active oil rig) while Williston declined by one and other smaller basins declined by two. The total U.S. count at 310, is at its highest level since the first week of May 2020, but remains 540 rigs lower than where it was 2 years ago, even as oil prices are 10% higher today than they were then.
The Dallas FED released a study last week with projections for Permian production following the anticipated restrictions on Federal lands. The report projects that total output will likely decline by 230mb-490mb per day, most of which will hit New Mexico drillers since all of Texas’ fields are on private or state land.
The EIA this morning reported on the growing role of U.S. Propane exports, which surpassed total diesel exports in 2020. Most of the propane exports are heading to Asia to meet growing demand for heating and petrochemicals, a reminder that the expected growth in petroleum in the coming decades is not likely to be from transportation.
Many In The Market Caught Off-Guard
Oil prices have spiked $5 a barrel, and refined products are up 12 cents/gallon since early Thursday morning after OPEC & friends announced they would not change their output cut agreement, which caught many in the market off-guard. The rally has propelled each of the big 4 petroleum futures contracts to their highest levels in more than a year, just a couple of days after it looked like the four month old trend might be breaking down.
The big rally in energy contracts comes in spite of a large selloff taking place in equity markets, which continue to act spooked by interest rates higher than 1%. You can make a strong argument that the two agencies most capable of moving energy prices with their policy are OPEC and the U.S. Federal reserve. Yesterday, we saw both in action with OPEC surprising the market to the upside, while the FED Chair apparently didn’t do enough to calm the stock markets. Given the two asset classes have had a strong positive correlation for most of the past year, this recent divergence could end up creating more volatility for energy contracts in the weeks to come, while a strong rally in the U.S. Dollar could finally pop the energy balloon.
Looking past the headlines of the OPEC announcement, there is some reason to pause given that the Saudi’s are still not convinced demand globally is capable of handling normal production levels. Then again, there is certainly a political angle to everything the cartel does, and it’s also possible that the U.S. reaction (or what critics call a lack of reaction) to the Saudi leadership’s role in the killing of Jamal Khashoggi could have played into this decision as well. A Bloomberg note this morning suggests that the move by the Saudi’s is a bet that U.S. oil producers will behave differently this time, even though they’ve behaved the same way for the past 150 years which has helped create the epic boom and bust cycles this market is famous for.
The refinery recovery efforts continue to progress with additional units coming online daily, but hiccups are common, and re-supply is not coming fast enough for those still scrambling to find allocation across Texas and neighboring states. The impacts on rack prices are spread much further however with markets from Arizona to Virginia all feeling the trickle down impacts of the heart of refining country shutting down for two weeks. Group 3 diesel differentials continue to stand out, spiking to premiums north of 30 cents Thursday morning before trading lower to end the day. That market has 20 cents of backwardation between now and the end of March, as traders bet that resupply should largely be complete by April, even though supplies continue to tick lower in the region this week.
Chicken or the egg: RIN values continue to set new multi-year highs this week, which is either helping drive the rally in refined products, or being driven by that rally depending on who you ask. There’s little news over the RFS program or the various legal challenges to it, and grain prices have been fairly flat, so it seems this rally could simply be the market betting that this new administration is unlikely to do anything that would help lower this de-facto tax on refiners.
Record Smashing Numbers In DOE’s Status Report
Buy the dip is the theme of the week as multiple selloff attempts have all failed, holding energy futures above their bullish trend lines and keeping the door open for a rally north of $2 for refined products this spring. We saw another example overnight as three cent losses for refined products have turned into two cent gains in the past hour. Despite the bullish pattern, prices still have some work to do in order to break through the high trades set last week, and if the worst rash of refinery shutdowns ever wasn’t enough to send prices above $2, the bulls may soon be hard pressed to make an argument for what it will take to do so.
Record smashing numbers in the DOE’s weekly status report caused by the unprecedented events of the past few weeks helped prices recover from an early round of selling Wednesday. That said, in total, those events have had a relatively muted impact on most fuel prices, in large part thanks to the unprecedented events we’ve been living through for the past year.
In the 30 years that the DOE has been publishing data, U.S. refinery utilization had never dropped below 66% of capacity. Last week, it dropped to 56% as the data caught up to the most widespread refinery disruption event in history. That drop, coupled with a surge in imports, created the largest crude oil build on record, and the largest drawdown in gasoline stocks, and yet prices were only able to manage a modest rally. For comparison, when utilization dipped below 70% following hurricanes Katrina (2005) and Ike (2008) we saw price increases of $1-$2/gallon in many markets. Today, even though utilization just smashed its record low, most markets are still trading below $2/gallon, and outages have been largely contained to small pockets of the country thanks to major refinery capacity expansions in the past 15 years and the sluggish demand caused by COVID shutdowns.
Diesel and premium UNL continue to be the biggest supply challenges as the refinery restarts continue their painfully slow process, although outages are proving to be short lived in most instances. Group 3 ULSD continues to be the standout for price action, surging to 30 cent premiums to ULSD futures as inventories in the region approach historic lows and resupplies are pulled to neighboring markets.
The OPEC & friends meeting is ongoing and so far there’s been little official word of what the official decision will be, leaving most of the market guessing on what the outcome will be today, or if there will even be an official announcement at all.
Huge Draws In Refined Product Inventories
The four-month-old bullish trend that’s nearly doubled prices for oil and refined products is coming under pressure this week, but so far buyers have been willing to step in each time the chart support is tested. We saw another attempted selloff overnight that pushed WTI below $60, only to see another recovery this morning. This is similar to the back and forth pattern we saw Tuesday morning, which turned into a wave of selling just before the close in the afternoon.
If the bullish trend line finally breaks, we could easily see a $8-10 drop in oil prices and 20-25 cent drop in products over the next month in what could be considered nothing more than an ordinary correction of a major bull market move. If the trend holds however, there’s still a decent fundamental argument for products to rally above $2 this spring and for oil to test $70.
The API’s weekly report was said to show huge draws in refined product inventories last week, as demand recovered faster from the Polar plunge than refineries. Both gasoline and diesel inventories were estimated to be down by more than 9 million barrels/day according to the reports, while crude supplies increased by more than seven million barrels as plants were struggling to restart their processing units. The DOE’s weekly report will be out at its normal time this morning.
Those inventory drawdowns are tangible in markets across the South West and Mid Continent regions, with basis values and rack spreads continuing to spike in several markets this week, with Group 3 ULSD continuing to find itself in the most unusual position as the most expensive diesel in the country, trading at a 20+ cent premium to futures this week. (Charts below) The near term supply situation is getting worse across parts of Texas and the Southwest as refiners continue to struggle with lingering damage that’s slowing restart attempts, and short term outages continue to pop up in New Mexico, Texas, Oklahoma, Arkansas and Louisiana.
For the most part, outages have been limited to diesel and premium gasoline, while regular grades are benefitting from the temporary RVP waivers and relative ease of production they bring. Coastal markets don’t seem to be feeling the squeeze, even though allocations are still not as wide-open as they might normally be this time of year. One thing to watch out for in the coming weeks is premium gasoline supply, which often runs out during the RVP transition given its relatively low demand, and promises to be even more of a challenge this year with refinery output slipping.
RIN prices reached their highest levels since 2013 in Tuesday’s session on the back of stronger grain prices, and expectations for stricter standards to come from the new administration.
The House Committee on Energy and Commerce introduced a new bill that intends to set the U.S. on a path towards zero emissions by 2050, in accordance with the Paris climate agreement. The thousand-plus page bill covers a wide variety of topics, and essentially all sectors of the energy industry, including some tweaks to the RFS. Grant programs to fund various waste-to-fuel programs will be a key topic as the race to produce renewables is setting up a feedstock shortage in the coming years. The bill also includes provisions that refineries requesting exemptions from the Renewable Fuel Standard must share their information publicly.
Meanwhile, the API is reportedly preparing a statement to endorse setting carbon emissions pricing as a way to set a viable economic path towards reaching the Paris agreement. Needless to say, the oil industry group’s plan is expected to look quite a bit different than the one being floated in the House.
OPEC & Friends hold their official meeting tomorrow, so expect the rumor mill to be cranked up over the next 24 hours and keep the oil & product markets on edge.
Large Plants Shutter After Polar Plunge
It’s a quiet morning in energy markets, after a busy overnight session had petroleum futures on the verge of breaking their four-month-long bullish trend that has nearly doubled the value of some contracts.
Refined products dropped more than three cents overnight, and WTI dropped back below $60, but all three contracts were able to bounce and are trading slightly higher this morning. The overnight sell-off just about closed the chart gap left behind by the transition from winter to summer spec gasoline for the RBOB contract, and ULSD survived its latest test of its bullish trend line, marking the first time since the end of January we’ve seen that weekly trend face a serious test.
The refinery restarts are continuing with some of the largest plants shuttered by the polar plunge coming back online in the past several days. While those restarts are helping alleviate concerns of long term outages, it will still be weeks before we see production return to pre-storm levels, and several reported hiccups are keeping supplies tight across Texas and neighboring states for the time being. The chart below shows the dramatic change in West Texas where diesel supplies went from feast to famine since the cold snap.
Midwestern diesel values continue to spike with Group 3 values reaching their highest levels in more than four years this week as refiners scramble to replace barrels lost due to downtime of their plants, the Explorer pipeline shutting for nearly a week, or the rush to resupply Texas. It’s highly unusual for Group 3 prices to be the most expensive in the country, and is unheard of for February. The only times we’ve seen anything like this is during the fall harvest demand spike. The best cure for high prices is high prices, and we’re already seeing deliveries into the region tick up as shippers capture a rare winter arbitrage, so that price spike may only last another few days.
Things are getting personal in the public argument between refiners CVR and Delek. CVR (fka Coffeyville resources) as a major shareholder in Delek has been taking an activist stance for some time, and now this week publically questioned the CEO of Delek’s compensation package. Not going down without a fight, Delek responded that its performance over the past five years was more than 3X that of CVR and would reply to their request in due course. Does any of this matter to the supply network? Probably not unless CVR gets control of Delek and puts some of its refineries on the chopping block.
The latest in a growing list of refinery unit conversions: Shell announced plans to upgrade its hydrogen plant in Germany to help produce more power-to-liquid aviation fuel. Here’s why oil executives think demand for crude will continue to grow despite the rapidly changing refinery landscape.
Today’s interesting read: Why America needs more mines if its electric dreams are to become reality, and why that’s a huge problem for the “Green” energy movement.
House Passes New $1.9 Trillion Spending Bill
After a wave of selling ended a strong February on weak note Friday, energy bulls have picked back up this morning, pushing prices back up 1% or more in the early going, and keeping the upward-sloping trend lines intact for now. Don’t be fooled by the big “increase” in RBOB prices from Friday, April RBOB is now the prompt contract, and is trading some 10 cents above where March left off as we transition to the summer-grade spec, but cash prices are only up around 1.5 - 2 cents so far this morning.
Friday’s selloff in energy contracts coincided with a big pullback in equity markets that appear spooked by a rise in interest rates that means borrowing money won’t be free forever. Stocks are also back on the move higher this morning after the House passed a new $1.9 trillion spending bill this weekend that includes the largest stimulus checks to date and reminds the market that both fiscal and monetary policy makers are eager to do whatever is needed to keep people spending.
Progress with refinery restarts continues across the Gulf Coast with more plants returning to rates similar to where they were at before the polar plunge, while others are still expecting several weeks to finish repairs. Tight allocations remain across much of the southern half of the country, while sporadic outages continue to be largely contained to parts of West Texas.
The shortages continue to help crack spreads for those plants that are able to operate, and Delek mentioned in an earnings call last week that it may restart its Krotz Springs, LA refinery that has been idled for months, if margins hold at current levels. Unfortunately Delek’s El Dorado Arkansas facility suffered a fire during turnaround work this weekend that injured six workers. While that fire won’t impact regional supplies since the plant was already down for the turnaround work, it is a reminder of how complex (and often dangerous) those plants are, and why it’s not like flipping a switch to bring those facilities shut by the storm back online.
OPEC & friends are meeting Thursday to discuss changed to their oil output agreement, and it seems like the market expects them to announce increases to the quota. We know many countries in the cartel are pushing to increase output, which forced Saudi Arabia to announce a unilateral production cut last year to prop up prices, so the question seems to be how much will the Kingdom allow.
Iran rejected direct talks with the U.S. over its nuclear program, a move that suggests tensions between the two countries will continue, and that Iranian oil currently sanctioned is not likely to hit the market (legally anyway) any time soon.
The CFTC weekly commitments of traders report showed new bets on lower prices decreased the net length held by money managers in WTI, ULSD and RBOB contracts last week, while Brent saw a small increase in net length held by large speculators. The net bets on higher prices held by money managers in WTI remains near a 2.5 year high despite the small pull back last week. In gasoline meanwhile, the large speculators seem to be continuing to head for the exits, in what appears to be a bet that the spring rally was actually a winter rally this year, and after prices nearly doubled it’s time for a pullback.
Baker Hughes reported four more oil rigs were put to work last week, all of which came from the Permian basin. Since the total rig count bottomed out in August, we’ve seen the total count increase in 23 out of 28 weeks, adding a total of 137 rigs. On the other hand, there’s still about 470 rigs left to add before we see drilling activity reach pre-COVID rates.