Energy Futures Get A Bounce After 7 Days of Selling

Energy futures are getting a bounce after 7 consecutive days of selling, giving the bulls a temporary reprieve, and delaying a push towards the March lows.

The remnants of Henri continue to dump heavy rain across parts of the North East, and while inland flooding will be a very real threat for the next couple of days, many areas are breathing a sigh of relief that the storm damage appears to be minimal. Power outages are relatively minor, and most of the fuel terminals in CT and RI that closed ahead of the storm were already reopened Sunday night. There’s still a lot of rain yet to come before this storm moves offshore tomorrow morning – and parts of NJ and NY that weren’t directly in the storm’s path seem to have taken the worst of it - but at this point, it appears we’ve dodged any major supply disruptions from this event, and now it’s a question of how much it will hit demand as drivers stay off the roads.

The National Hurricane Center is tracking 2 new storm systems this week, but both have low odds of development, and early models suggest neither one will be a threat to refining country. 

After RINs saw heavy selling on Thursday pushing prices down by roughly a dime, they dropped another 20 cents on Friday after multiple reports were released that the EPA was recommending reducing blending obligations for 2021, but increasing them for 2022.  Based on the market reaction, many didn’t care about the “increase in 2022” part.  While those recommendations still have to go through an approval period before becoming official, it looks like we’ll get to see another court battle over the Small Refinery Exemption portion of the RFS as Delek sued the EPA last week for failing to respond to its SRE request from 2019. This isn’t exactly news, as Delek had provided a notice of intent to sue the EPA for this issue 18 months ago, but should finally force the agency into making a decision that could set an important precedent.

Money managers cut back on their net length in energy contracts across the board last week, but the moves were relatively small, suggesting there was probably more liquidation happening after the report data was compiled last Tuesday. WTI length held by the large-speculative category of trader dropped to its lowest level since the rally began last November.   Refined products meanwhile actually saw new long positions added, but those were barely edged out by new short positions on the week. ULSD contracts continue to see large speculative bets on higher prices near 3 year highs, which could create more volatility if those funds decide they’re better off playing Robin Hood or crypto than the CME.

While interest in petroleum futures may be waning, speculators continue to add more length in carbon positions.  RGGI credits saw managed money reach a new record for speculative length last week, without a single short position reported for that trade category. CCAs did see a small pullback in speculative length for a 2nd week, which may have contributed to a larger pullback in prices following the 3rd quarter credit auction.

Baker Hughes reported 8 more oil rigs were put to work last week, 6 of which were in the “other” category of smaller basins, with the remaining 2 coming from the Permian. The total US oil rig count is now 233 rigs above its low set last year, but remains 278 rigs below where we saw it just before the COVID lockdowns started, even though prices were $10-$15/barrel lower then than they are today.

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