Energy Futures Are Slipping Back Into The Red To Start The Week After A Furious Friday

Market TalkMonday, Feb 14 2022
Pivotal Week For Price Action

Energy futures are slipping back into the red to start the week after a furious Friday rally sent prices to a fresh round of 7 year highs. Reports that an invasion of Ukraine was imminent Friday afternoon sparked another big rally, while weekend diplomacy is getting credit for the pullback this morning. 

The backwardation in diesel prices is holding near its highest level in 19 years and more terminal outages and tight allocations are being reported as physical supplies remain well below average for this time of year. 

Baker Hughes reported a net increase of 17 oil rigs last week, the largest single week increase in 4 years. 13 of those rigs were added in Texas, with the Permian adding 7 and the Eagle Ford adding 5. It’s worth noting that the last time we saw an increase this large was the 2nd week of February 2018, which suggests perhaps the company does a reconciliation that may account for the large increase more than drilling companies suddenly breaking the labor log jam.  If that theory is incorrect, then maybe this week’s data is the start of an accelerated pace of drilling with producers racing to take advantage of higher prices. 

Money managers reduced their net length in the latest CFTC report releases Friday. That report was made from Tuesday’s trading data, suggesting that the big funds we selling modestly during the big move lower early last week, and that the huge rally later in the week may cause us to see a large increase in speculative positions in the next report.

Perhaps the most notable change in the CFTC reports over the past few weeks has been a spike in WTI open interest, which overtook Brent for open contracts for the first time in almost 2 years. WTI had been losing interest over the past several years as its delivery point in Cushing OK became less relevant as the US became a net exporter, and new competing contracts in the Houston area took market share. A rush of options activity seems to be bringing interest back to WTI, and now that football season is over, perhaps we’ll see even more big oil bets as the gamblers look for a new outlet.

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Market Talk Update 02.14.22

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

Click here to download a PDF of today's TACenergy Market Talk.