February Trading Starts On A Strong Note

Energy futures are starting February trading on a strong note, after stumbling across the finish line in January. An early rally of 3-4 cents in refined products Friday was erased later in the day, and there was a flurry of selling just before settlement that put the complex back on the verge of breaking below the bullish trendline that’s been in place since the first of November. Today’s bounce keeps the bull market intact for now, but we’ll need to see the high water mark set Friday broken this week if the upward momentum can hold.

Equity markets continue to see an uptick in volatility with a large sell-off Friday coinciding with the pullback in energy futures, before both asset classes started to rally again overnight. Even though the correlation between the two has weakened in the past couple of weeks, whenever there’s an uptick in volatility it seems one often influences the other, and now that the Reddit revolution is pointed at Silver contracts, a heavier influence on other commodities could be a possibility. 

Baker Hughes reported 6 more oil rigs were active in the U.S. last week, a tenth straight week of increases. The Permian basin accounted for 4 of the 6 rigs, and accounts for 192 of the 295 total drilling rigs currently active in the country.

Money managers continue to be conflicted on their energy contract holdings with the large speculative category of trader adding net length in RBOB, ULSD and Brent contracts last week, while cutting length in WTI and Gasoil contracts. Net Length in RBOB and ULSD is at its highest level in a year as a strong rally in crack spreads encourages more funds to jump on that bandwagon. 

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