Energy Futures Rebound to Start the Week

Energy futures are bouncing to start the week, following through on a recovery rally that saw Friday’s early losses wiped out and salvaged weekly gains.

Money managers have been bailing out of their bets on higher energy prices in recent weeks, and as the CFTC’s data is finally catching up after 2 months of delays, we can finally see those figures the same week they’re compiled. The past two weeks alone have seen a reduction of more than 100,000 WTI contracts held by large speculators, bringing the total net length to the lowest level since January 2016. 

The COT data also shows large reductions in producer hedging during this latest selloff in a sign that the industry may believe that prices won’t stay this low for long.  

A WSJ article over the weekend highlighted how the options traders may have exacerbated the push lower over the past two months and could help spark a recovery rally later in the year.

Baker Hughes reported an increase of 4 oil rigs drilling in the US last week, snapping a 5-week slide that had pushed drilling activity to a 9-month low.  The Permian basin accounted for 3 of the 4 rigs added last week.

Iraq won a 9-year lawsuit against Kurdish oil shipments, and that result has temporarily halted shipments of oil from the autonomous Kurdish region via the Turkish Ceyhan pipeline system.

Saudi Arabia announced an expansion of its partnership with China, increasing its multi-billion investment in new refining infrastructure in the world’s largest oil buyer. We’ve already seen multiple new refinery projects come online in both countries over the past two years, and this new agreement will continue the trend of additional capacity in the eastern hemisphere while the west continues to see declines.

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