A Big Selloff Took The Wind Out Of The Bulls Sails To Start February

Diesel prices are trying to lead the energy complex higher to start the week after a big selloff took the wind out of the bulls sails to start February.  

The US military began a series of strikes on Iran-linked targets in Iraq and Syria Friday, and continued attacks against the Houthi Rebels in Yemen over the weekend.  Although freight costs have increased as container ships and tankers take the long way around Africa, the market continues to largely shrug off the news as excess capacity and sluggish demand both seem to be acting as price buffers so far this year.

A Bloomberg article Saturday highlighted how buyers of oil and refined products are adjusting to find more local supplies due to the canal issues limiting their flexibility.  To paraphrase, supply still isn’t a problem for most despite the logistical hurdles, but profits will take a hit.

Money managers were acting much more bullish on energy contracts to begin last week’s trading, with big speculators making healthy increases to net length across the energy complex on a combination of new long positions and short covering.  Of course, those positions were accumulated just before 3 days of selling to end the week, so some of those funds may be wanting a do-over. 

Baker Hughes reported no net change in oil rigs drilling in the US last week, while natural gas rigs saw a decline of 2. The total US oil rig count is down 100 from this time last year, and natural gas rigs are down 41, and yet US producers are still cranking out record amounts of oil and gas, which is no doubt a major factor in why Saudi Arabia canceled its plans to add another million barrels/day of spare capacity in the coming years.

Ukrainian drones hit another Russian refinery over the weekend. Like just about everything else in the region, it’s hard to get an accurate read on the impact, but it’s simple enough to say that a major fire at the largest facility in the region (300mb/day) isn’t going to improve the export situation. 

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