Energy Markets Surge As Geopolitical Tensions Ignite Christmas Week Rally

Energy markets are seeing a strong rally to begin Christmas week trading with a combination of geopolitical concerns and a risk-on rally in equities seeming to combine to help prices move further away from the multi-year lows set last week. WTI is leading the move this morning, up $1.5/barrel (2.7%) while refined products are up a little over 2% with gains of around 4 cents/gallon so far.

Tensions continue to increase around Venezuela with a 2nd oil tanker seized by U.S. forces over the weekend, while a 3rd is being pursued as a blockade of all sanctioned ships continues. While U.S. imports from Venezuela are exempt from the blockade, shipments to Cuba are not, which is creating the next crisis in the Caribbean. China is one of the primary buyers of sanctioned crude from Venezuela (not to mention sanctioned Russian and Iranian supplies) and has condemned the seizures this morning as a violation of international law.

Ukraine’s drones hit a 400mb/day export terminal on the Black Sea overnight, a day after a strike hit another Russian oil rig in the Caspian Sea.

Baker Hughes reported a drop of 8 oil rigs drilling in the U.S. last week, bringing the total active rig count to a fresh 4 year low at 406. The Natural Gas rig count held steady at 127.

The Primary Vision count of fracking crews active in the U.S. also dropped by 8 on the week, and the new total of 160 active crews matches the lowest level we’ve seen since February 2021, which matches the timing of the low prices we saw for WTI and RBOB last week.

Stepped in a bear trap: Money managers added more than 40,000 short positions in Brent crude oil contracts in the latest weekly Commitments of Traders report and smashed the previous record for speculative money bet on lower prices as of last Tuesday. There’s a trading adage that when everyone gets on the same side of the boat, that’s when it tips over. It appears we’re seeing that phenomenon play out as Brent crude has rallied 4 straight days since that record for bets on lower prices was made, helping push values up by more than $3/barrel (5%).

The CFTC’s weekly data is almost caught up after the government shutdown, and perhaps most notable in the lagging data was that speculators had more funds bet on higher gasoline prices than they’d had since COVID began 6 years ago, which means the slide in prices to their lowest levels since February 2021 last week must have been extra painful for the hot-money crowd of hedge funds.

Marathon reported it would undergo 18 days of planned maintenance at its 365mb/day Los Angeles refining complex to local regulators Friday, with work running from 12/20 to 1/7 following multiple unplanned upsets at the facility last week.

Kinder Morgan reported a spill of 65 barrels of Renewable Diesel Friday afternoon at its Galena Park TX terminal complex due to a seal failure. The product appears to have been contained by the dike system in place for just this type of thing, and the remaining operations weren’t affected.

The Christmas holiday calendar for fuel pricing will look just like Thanksgiving with everything shut down Thursday, and then futures trading on Friday while cash markets will not be assessed. In addition, the NYMEX will close early on Christmas Eve so anyone still pretending to be working Wednesday afternoon can head home. See table below.