Energy Markets Hold Steady While Global Institutions Shake

It’s a mixed bag for energy markets to start the week with gasoline prices ticking modestly higher, oil prices modestly lower, and diesel values hovering near break even in the early going.

While energy contracts are off to a quiet start, there appears to be turbulence in other financial markets after the U.S. FED Chair called out the President and Justice Department for serving the Federal Reserve with grand jury subpoenas, threatening criminal indictment. That news has U.S. equity and treasury prices pointing sharply lower to start the day as the independence of the all-powerful setter of interest rates is once again called into question.

U.S. oil major executives weren’t particularly enthusiastic about investing (or re-investing for some) in Venezuela, with Exxon singled out by the President over the weekend after suggesting the country was “uninvestable” until significant changes are made to commercial frameworks and the legal system. Don’t worry though, the oil industry was built by wildcatters willing to take just this sort of risk, and even if they’re unsuccessful, the Land Man Venezuela spin-off is sure to be a hit.

OPEC has been officially silent so far about the takeover of one of its founding member’s oil production. The cartel did release updated compensation plans last week from 4 of the countries that had been over-producing their quotas. Most notable in the plan is Kazakhstan is pledging to cut its output by 569mb/day starting in February and increasing those output cuts to 669mb/day by May. If that holds true, it will drop the country’s output below 1 million barrels/day, suggesting there may be longer term issues with their ability to export following Ukraine’s attacks on the CPC.

Money managers had a mixed reaction to the Venezuelan drama last week with Brent Crude, RBOB and ULSD all seeing small reductions in large speculative net length, while WTI and Gasoil saw increases. The largest move was more than 12,000 new long positions of European Gasoil (ULSD equivalent) added during the week which increased the net length held by money managers by over 40%. Brent Crude meanwhile saw another 10,000 short contracts added to the already huge amount of money betting on lower oil prices, just in time to get run over by the 5% rally in the back half of the week.

Environmental credits saw a healthy wave of what appears to be profit taking by hedge funds last week with money manager length in LCFS and RIN contracts seeing a sharp pullback after months of steady increases. Credit values seemed to reflect that long liquidation last week with LCFS and RIN values both stalling out after reaching multi-month highs to start the year.

Baker Hughes reported a drop of 3 oil rigs and 1 natural gas rig drilling in the U.S. last week, with the majority of the losses coming from the Permian basin. The 244 oil rigs drilling in the Permian is the lowest count since August of 2021.

The Primary Vision count of Fracking crews active in the U.S. increased by 3 last week to 156.