Bullish Fundamentals Clash With Bearish Speculation In Global Oil Markets

It’s a mixed bag for energy markets to start Tuesday’s session with refined products giving back a good portion of Monday’s healthy gains, while oil prices are ticking back into the green after moving lower Monday.

Two different ships were apparently damaged near the Strait of Hormuz overnight, in what appears to be the latest attempt by Iran to stop vessels from using routes near the coast of Oman. A Saudi Crude oil tanker and a Qatari LNG tanker were both said to have sustained some damage overnight, but markets seem to be taking this news in stride while they wait and see how big the U.S. response will be this time.

Kpler reported Monday that 108 verified crossings through the Strait of Hormuz happened over a 3 day period prior to the latest attack, which is progress from where things were several weeks ago, but still less than 30% of the average of 130 ships every day prior to the war.

Refined products have de-coupled from crude this week with crack spreads surging again Monday thanks in part to a record rally in RIN prices, and the impacts of multiple refinery upsets in both the U.S. and Europe, while both regions are dealing with a heatwave that is pushing electrical grids and in some cases creating the need for diesel supplies to supplement power generation.

Money managers were making small reductions in net length on WTI contracts ahead of the holiday weekend, but were making minor additions to their length held on refined products. The open interest in refined products has seen only a minimal rebound since the CME started easing off of its elevated margin requirements as volatility has decreased, but the total outstanding positions remain near their lowest since the 2022 volatility and margin spike caused a similar slashing of open interest.

The big action for big speculators (outside of prediction markets) continues to be concentrated in the Brent crude oil contract which once again has short positions approaching all-time highs, which suggests the big money funds are figuratively buying into (literally selling) the idea that there’s a sudden glut of oil supply, even though the world’s most vital artery for oil is still at roughly 1/3 capacity and global reserves are at multi-decade lows.

Marathon reported that power was restored to its Detroit refinery Monday, after a power outage Sunday caused flaring and apparently forced multiple units offline. A company statement suggested that units were preparing to attempt restart Monday afternoon.

Ukraine continues to flex its expanding capabilities, hitting Russia’s largest refinery – the 420mb/day OMSK refinery in Western Siberia, more than 1500 miles from the border - in an attack Monday.

Energy News Today is reporting the Monroe successfully started up the 2nd crude unit at its Trainer PA refinery more than 2 weeks after the plant was knocked offline. The ENT report suggests the FCC unit damaged in a fire during a restart attempt 10 days ago is expected to stay offline for roughly 2 months for repairs, which will limit the run rates of the facility to around 75% of its capacity.