Energy Markets Rise As Peace Hopes Fade And Supply Strains Persist

Energy markets are moving higher to start the week as optimism peace fades, with one side calling their proposal “reasonable” and “generous” while the other referred to it as “totally unacceptable”. The price action remains relatively muted compared to what we’ve become used to over the past 9 weeks despite the lack of diplomatic progress, and more attacks in and around the strait over the weekend, suggesting the futures market continues to hold out hope even as physical markets continue to show signs of strain.

While gasoline prices have trailed diesel in most trading sessions since the war broke out (thanks to diesel’s dual role as a natural gas supplement and the primary transport fuel in many non-U.S. nations) they’re now taking more of a leading role as we head into the driving season with domestic inventories having decreased for 12 straight weeks.

The Chicago region continued its wild streak Friday with trades reported for both ULSD and Premium UNL at premiums of $1.50/gallon as multiple refiners are still dealing with unplanned maintenance events and there were rumors of an off-spec pipeline batch that further complicated the supply situation. At least one of the region’s major refineries was said to be fully back online after extended maintenance which should help offset some of the losses elsewhere.

An explosion and fire were reported at PBF’s 189mb/day refinery in Chalmette LA, near New Orleans. No injuries were reported from the blast which was felt miles away from the plant, and the fire was quickly controlled. No word yet from the company on which unit(s) were impacted and if output is expect to drop as a result. It’s also worth noting that this facility is also where the company’s JV Saint Bernard (the parish, not the dog) Renewables, AKA SBR produces RD.

Fool me once? Money managers made small reductions in their net-length in most energy contracts last week, suggesting they weren’t going to be tricked again by another claim of peace progress. Then again, the CFTC’s weekly report is compiled as of Tuesday, which was at the start of the week’s sell-off so we’ll have to wait and see if “the memo” forced out other large speculators until this week’s report. The only contract that saw a net increase in large speculative bets on higher prices was RBOB gasoline, which saw a 3rd straight week of increases as we approach the start of driving season with stockpiles eroding steadily over the past 2 months.

Money managers have not been playing the RIN game during the recent rally, with minimal movement in large speculative positions in either D4 or D6 contracts as prices have rallied to a record high over the past 2 weeks. The Producer/Merchant category of trader has increased its length in D6 contracts every week since the EPA’s final rule on RVO’s was announced in late March, suggesting the rally is driven by obligated parties trying to get ahead of an expected shortage.

Baker Hughes reported a net increase of 2 oil rigs drilling in the U.S. last week, while the natural gas rig count dropped by 1. The Primary Vision count of fracking crews active in the U.S. increased by 5 for a 2nd straight week, bringing the total to 179 which is a fresh 6 month high. There’s been much written about U.S. Producers cautious approach to trying to increase production in reaction to the war’s fallout, but the recent tick higher in fracking crews suggests some are finally willing to give it a shot.