Quiet Start For Energy Futures

It’s a quiet start for energy futures as the MLK Day holiday has banks, schools and spot markets closed meaning many market participants are taking the day off. Due to the global status (not to mention earnings expectations) of the CME Group, NYMEX energy contracts will trade until noon today, but settlements will not be posted until tomorrow.

A strong Friday session pushed futures to the edge of a technical breakout, with most petroleum contracts just a few ticks away from their December highs. If they can break and hold above those levels, there is a strong technical argument to be made for higher prices, even though fundamental factors don’t appear to be nearly as supportive.

Baker Hughes reported a decline of 21 oil rigs in the US last week, the largest weekly drop since February 2016. The total rig count of 852 is still 105 more rigs than were drilling this time last year, but could be a signal that drilling may slow down for a while, at least until the backlog of drilled but uncompleted wells (aka DUCs) gets worked through. If that happens, we could see US production continue to climb even with rig counts decreasing.

Money managers added to the net-long holdings in Brent for a 2nd straight week, but the total amount of speculative funds betting on higher oil prices remains far below the past several years, according to the ICE commitments of traders report. While the CFTC is still not publishing COT data due to the government shutdown, it seems reasonable to think that large funds may be following a similar pattern for NYMEX contracts, dipping their toes back in the speculative pool after energy prices finally seem to have bottomed out.

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