After Friday's Big Sell Off Energy Markets Tick Modestly higher

Energy and equity markets are ticking modestly higher to start the week after a big Friday sell-off sparked by the latest escalation in the U.S./China trade war. Suggestions that the actual penalties may not be as bad as originally indicated seem to be providing some of the spark for the early sigh of relief rally.

RBOB gasoline prices are ticking up about 1.5 cents so far, after reaching their lowest level since February 2021 (when most were just considering the idea of returning to the office) on Friday, while WTI and ULSD “only” hit 4 month lows.

OPEC held its forecasts steady for oil demand and supply growth through 2026 in its latest Monthly Oil Market Report, citing continued stable economic growth globally. The cartel’s output ticked up by 630mb/day during September, making good on the targeted output increases for the month as only a few countries were unable to ramp up production.

Ukraine hit more Russian energy infrastructure over the weekend with at least 1 refinery far from the border, and an oil pipeline pumping station both targeted. A Financial Times article over the weekend said that the U.S. has been providing Ukraine with intelligence to plan their long-range drone strikes the past few months, which helps explain the recent uptick in damage done to those facilities.

The CFTC still isn’t releasing its weekly Commitments of Traders data due to the government shutdown, but the ICE data for European contracts shows money managers were bailing out of long bets on energy contracts in a big way last week. The ICE Brent and Gasoil (European ULSD equivalent) shed more than 95,000 contracts of length from the large speculative trade category last week with roughly 2/3 of that drop coming from long liquidation (closing out bets on higher prices) while the remainder came from new short bets that prices would drop.

Baker Hughes reported a decline of 4 oil rigs active in the U.S. last week, while the natural gas rig count increased by 2. The drop in oil rigs, matches a decline in Frac crews reported by Global Vision for the week. This year’s slowdown in drilling and fracking activity hasn’t yet had much of a negative impact on output however with the EIA reporting that crude production reached the 2nd highest ever (for any country, ever) last week.

Delek reported unplanned flaring at its Big Spring TX refinery Friday in what appears to be a restart attempt of a unit after that facility experienced an explosion the week prior.