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Energy Markets Are Facing A Wave Of Selling To Start May After A Wild Finish To April Trading

Monday, May 2 2022
Market Talk

Energy markets are facing a wave of selling to start May after a wild finish to April trading. Equity markets around the world have been facing heavy selling pressure as expectations for a global economic slowdown increase, which seems to be giving a risk-off feel to all sorts of assets to start the new month. 

ULSD futures stole the show again last week, with the expiring May contract breaking $5 for the first time ever on Thursday, then rallying all the way to $5.85 on Friday before crumbling to $4.40 before the close. The June contract is hovering around the $4 mark, down around 4 cents on the day, and while the 32 cents of backwardation to July would have set records in year’s past, it seems quaint compared to what we just went through.

Money managers continue to make only minimal changes in their NYMEX energy holdings and open interest for refined products remains near multi year lows as some contracts, HO in particular, are simply too hot to handle for many these days.

Baker Hughes reported a net increase of 3 oil rigs drilling in the US last week with New Mexico and Louisiana both adding a pair, while Texas dropped 1 on the week. While the rig count continues its slow and steady increase, at this pace it will take until the end of the year to reach pre-pandemic drilling levels. 

California’s LCFS credits tumbled to a multi-year low on Friday after the state’s Air Resource Board reported the largest ever quarterly surplus in credits. Large increases in Renewable Diesel and electricity production were the biggest factors during Q4 of 2021, while biodiesel and bio-methane both saw decreases. The drop in LCFS credit values from $150 to start the year to $107 now saves a consumer of gasoline and diesel about a nickel/gallon, but costs producers of a renewable product with a CI of 30 about 35 cents/gallon, which may be enough to encourage incremental barrels to go to Europe instead of California. 

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