After A Big Friday Rally And A Quiet Overnight Session, Energy Markets Pushing 2-3 Cent Gains In Refined Products

Market TalkMon, Oct 16, 2023
After A Big Friday Rally And A Quiet Overnight Session, Energy Markets Pushing 2-3 Cent Gains In Refined Products

After a big Friday rally, and a quiet overnight session, the buyers have stepped back into energy markets this morning, pushing 2-3 cent gains in refined products while oil prices are up about 50 cents/barrel. The fear of potential supply issues caused by escalation in the Middle East and the G7 sanctions on Russia continue to be cited as the driver of the big recovery rally after most energy contracts had their biggest weekly drops in 6-months to start October. 

We saw the expected bandwagon bail out by money managers in last Friday’s CFTC COT report, with speculative funds reducing their bets on higher energy prices by double digit percentages across the board during the big selling just before Hamas invaded Israel. Based on what we saw Friday, it’s likely we’ll see a large percentage of those funds jumping right back on as the supply fear trade took back control from the demand fear trade for the time being.

Baker Hughes reported a net increase of 4 oil rigs active in the US last week, snapping the streak of declines that’s pushed the rig count to a 19-month low. US producers set a new all-time record for oil output last week according to DOE estimates despite the fact that the rig count is down by more than 120 from last year’s peak, and down more than 1,000 from the levels we saw in 2015.

The DOE announced the winners in a nationwide RFP to develop hydrogen hubs, and is providing $7 billion to 7 different projects across the country. Naturally, the administration that set to make natural gas pipelines impossible to build just before Russia invaded Ukraine is now authorizing natural gas as the primary feedstock for more than half of these projects as the world continues to come to terms with the physical realities of transition to cleaner energy sources and the legislators’ need for cheap energy to stay in power.

A California judge ordered P66 to stop construction on its Rodeo renewables facility due to ironic environmental concerns.  It’s unclear whether or not the facility which is in the process of converting from a traditional refinery can continue making gasoline and diesel from crude oil while the court case proceeds. The lawsuit behind the order also targets the recently converted Marathon Martinez facility, although that plant is apparently still able to operate. 

Reuters published an interesting read Friday on why new Chinese refining capacity is poised to protect Europe from diesel shortages again this winter, while capitalizing on cheap Russian crude. 

A Dallas FED study shed further light on the change in exports from Russia since the Ukraine invasion, and the impact of sanctions by the G7.

The National Hurricane Center gives 70% odds of a new tropical storm forming in the Atlantic this week, but early forecast models suggest this storm will stay out to sea and not threaten the US. 

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After A Big Friday Rally And A Quiet Overnight Session, Energy Markets Pushing 2-3 Cent Gains In Refined Products