Energy Prices Are Starting The Week On A Soft Note

Energy prices are starting the week on a soft note, after a strong finish pushed WTI back above $80 Friday, while RBOB rallied more than 14 cents off of its low for the week and ULSD added 11.

Plenty of geopolitical turmoil doesn’t appear to be stirring much buying interest so far. The biggest story of the weekend is that Iran’s president was killed in a helicopter crash, setting off a slew of questions in one of the world’s largest exporters of oil and violence. In other regime change news, the Saudi Crown Prince is delaying travel due to the deteriorating health of the king just as the country is about to sign a historic security deal with the US.

The market is also appearing to shrug off more “same old violence” news: Another round of drone strikes took another Russian refinery off-line over the weekend, and an oil tanker going from Russia to China was hit by a Houthi Missile, which proves the rebel group’s aim continues to be better than its judgement, particularly with Russia’s oil exports accounting for the vast majority of the southbound tanker traffic through the Red Sea. While these ongoing attacks are no doubt creating supply issues locally, they’ve yet to move the needle on the global market.

Throwing in the towel? Money managers reduced both their long and short positions in WTI and RBOB contracts last week as some big funds seemed to be giving in to the idea that the spring rally is officially over, while others may already be taking profits after the big sell-off in May. Brent crude saw more long liquidation and new short positions added, while both ULSD and Gasoil diesel contracts saw fresh bets on higher prices ahead after prices reached 10-month lows last week. The open interest on ULSD contracts reached a 2.5 year high last week as the reduction in volatility this year continues to encourage more participants to rejoin the market after bailing out during the chaos of 2022.

Two big Reuters stories on the potential “Game Changer” refineries in the Atlantic Basin: Nigeria’s huge new refinery struck a supply deal with French oil major Total, as that facility continues to ramp up production, bringing a new major buyer for WTI, and a new seller of refined products. That facility still isn’t producing much in the way of fully finished products, but it’s already sending partially refined fuels to US and European refiners for further processing. Meanwhile, Mexico’s “dream” refinery continues to be a nightmare as actual crude processing rates are just 5% of capacity despite numerous claims by the country’s president and PEMEX puppets to the contrary. The longer that refinery is unable to produce finished products, the more demand there will be for US Gulf Coast refineries who depend on Mexico for roughly half of their gasoline exports and a third of their diesel sent out of the country.

Baker Hughes reported a net increase of 1 oil rig drilling in the US last week bringing the total to 497 rigs vs 575 this time last year, while the natural gas rig count held steady at 103 compared to 141 a year ago. The increase for oil rigs was the first in 4 weeks.

Valero reported a 2nd upset in as many days at its McKee refinery in the TX panhandle that knocked an FCC unit offline. Surprisingly that appears to be the only refinery reporting a unit knocked offline by last week’s deadly storms, despite more severe weather sweeping through Houston and across much of refinery row.

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