Gasoline Prices Are Leading The Energy Complex Lower To Start The Week As Investors Are Acting Skeptical Of The Recent Rally In Prices

Gasoline prices are leading the energy complex lower to start the week as investors are acting skeptical of the recent rally in prices, while distillates are resisting the pull lower as supply shortages continue. 

Money managers reduced their holdings in WTI and Brent contracts last week, liquidating nearly 9% of the long contracts open and also adding new short positions. The large speculators continued to add to their diesel positions with both ULSD and Gasoil seeing more length added last week, while RBOB continues its recent streak of liquidation as the big funds don’t seem to have any confidence in gasoline prices heading into the winter. Open interest for petroleum contracts remains at multi-year lows as the volatility remains too hot for many to handle, but we have seen a notable tick higher for Brent crude over the past 3 weeks.

It’s not too hard to understand why big speculators continue to bet on higher diesel prices, even when the other contracts are falling out of favor, as reports surface that parts of New York and New England are already having to ration heating oil even before winter starts, and wide spread rationing across Europe is expected. Adding to the pain this week, 2 French refineries remain offline due to strikes, even after negotiations were said to have been successful last week, and the country’s nuclear plants are malfunctioning just when they can least afford it.

Baker Hughes reported a net increase of 2 oil rigs working in the US last week, a 2nd straight increase that puts the total drilling activity at a fresh post-pandemic high, but still far from pre-COVID levels. A Reuters note this morning highlights the various challenges US shale drillers are facing to ramp up output, and note that last week’s announcement from the White House of a $70 “floor” for refilling the SPR does little to change that.

There are 2 storm systems being tracked by the NHC off of the US East Coast as we approach the 10 year anniversary of Hurricane Sandy. Fortunately, neither of these systems is given high odds of developing into a named storm of any sort, and given their positioning far north of the warm Caribbean waters, the chance of major development like we saw with Sandy are almost non-existent.   

Today’s interesting read, from the WSJ: While the world frets over shortages of gas and diesel, is the race to increase LNG infrastructure setting the stage for another global supply glut?  

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