Energy Markets Continue To Struggle For Direction With Mixed Action In Futures

Energy markets continue to struggle for direction with RBOB and WTI clinging to small gains to start the week while ULSD futures are seeing penny losses. Friday’s summit between the U.S. and Russia ended early, without a deal, but did include a notable pivot from the U.S. President who is no longer requiring a cease fire prior to negotiating an agreement to end the war in Ukraine. European leaders including Ukraine’s President are expected at the White House today to make their case, and it appears that markets are once again in wait and see mode as a result.

One key detail for energy markets is that it appears the chance of new sanctions on Russian energy supplies, and their key buyers in India and China, are going to be on hold for the short term.

With such mixed action in futures over the past week, it’s not surprising that money managers also had varying moves in their positioning. Crude oil contracts saw long liquidation and new short positions added by large speculators, while distillate contracts saw modest increases in net length as those funds covered short positions. RBOB futures saw a net decrease in speculative length as liquidation of long positions outpaced short covering by 5 to 1.

The new shorts in WTI pushed the net length held by Money Managers to its lowest level since April 2009, when prices were recovering from their plunge from $147 to $32 during the financial crisis. One key difference in the lack of interest (figurative and literal) in WTI this time around is that the Cushing hub is becoming less relevant as the U.S. rapidly becomes one of the world’s largest oil exporters and new TX based contracts become more active. An RBN article this morning highlights the race to bring more Western Canadian oil barrels to the U.S. gulf coast, with several of the potential projects bypassing the Cushing hub.

Hedge funds were making small reductions in their bets on higher RIN prices last week as values for both D4 and D6 RINs pulled back after reaching 2 year highs. The EPA’s monthly RIN generation data did not populate as expected on Friday, and the site appears to be offline so far this morning.

Baker Hughes reported an increase of 1 active oil rig drilling in the U.S. last week, marking the 2nd straight tick higher after 14 straight weeks of declines. The 2 rigs added in 2 weeks are a drop in the bucket compared to the 65 rigs taken offline during the previous 3 months. The Natural Gas rig count decreased by 1 rig for a 2nd straight week.

Erin blew up from a Tropical Storm Friday morning to category 5 hurricane with sustained 160mph winds on Saturday but fortunately is staying offshore as it works its way north this week.

Right behind Erin the NHC is giving 50% odds of development to another tropical wave as it crosses the Atlantic this week. Longer range forecasts aren’t yet published for this potential system, but so far, it’s on a similar track to Erin, but if it develops further south or West, it could quickly become a threat to the U.S.

Valero reported an upset at its 290mb/day Texas City refinery over the weekend that lasted 23 hours. It’s unclear if the units impacted were forced to reduce runs rates due to the blip.