Energy Markets Rally On US-EU Trade Optimism; Speculator Sentiment Remains Mixed

Energy markets are starting the week on a strong note with refined products both up around 3.5 cents, following a new trade deal announcement between the U.S. and EU that appears to be driving optimism that a worst case scenario for economic activity has been avoided, and that more U.S. energy supplies will be sold across the pond. In addition, U.S. and Chinese negotiators are meeting again to try and extend a deadline to delay the next round of tariffs in their ongoing trade battle.

Money managers (AKA Hedge Funds) weren’t acting very optimistic about a continued rally in energy prices last week with 4 of the big 5 petroleum contracts seeing a net reduction in their speculative length, through a combination of new short bets and liquidated long positions. RBOB gasoline futures saw the biggest reduction in length, dropping by more than 13,000 contracts on the week. The exception to the rule came from Europe’s Gasoil (ULSD equivalent) contract that saw an increase of 8,000 contracts, pushing its speculative length to the highest level in just over a year.

Funds continued piling into long bets on California’s LCFS prices for a 7th consecutive week, apparently betting that the new more stringent rules, and the precipitous drop in biofuel production to start 2025 will both push values up off of the multi-year lows reached this spring. The Q1 LCFS data dump from CARB is expected to be released Thursday, and given the influx of funds and recent price rally, we may be setting up for a bit of buy the rumor, sell the news.

The big speculative traders are less optimistic about other environmental credits, making small reductions in their bets on higher Cap & Trade credit price, along with D4 and D6 RINs even though those prices are approaching 2 year highs.

Exxon reported an upset at its 588mb/day Baytown TX refinery over the weekend. The company reported emissions after a leak was discovered in an oil tank mixer, but also said that operations were only minimally impacted by the event which is expected to last until tomorrow afternoon according to the TCEQ filing.

Baker Hughes reported a 13th consecutive decline in the count of active U.S. oil rigs last week, with a decline of 7 for the week and 60 total during that stretch that began at the end of April. The Natural Gas rig count is heading the opposite direction the past two weeks, adding 5 more rigs last week and 14 over the past two reports.

U.S. LNG producers look to be some of the big winners from Europe’s pledge to buy more energy products from the U.S. Domestic natural gas prices haven’t flinched on the news as prices are still bottlenecked by the capacity of export facilities that can cool natural gas before shipping it. One of the largest such facilities, Freeport LNG , reported an upset over the weekend that required the facility to restart its Train 1 unit.