RBOB Gasoline Futures Trying To Lead The Energy Complex On A Recovery Rally

RBOB gasoline futures trying to lead the energy complex on a recovery rally, attempting to climb back towards the $2 mark after bottoming out around $1.85 last week, while diesel prices are struggling to stay out of the red after hitting another multi-year low of $2.0431 on Wednesday.

Money managers continue their bearish stance on energy contracts, slashing net length across the board again last week with a combination of long liquidation and new short positions added pushing Brent crude to the first net-short position held by the large speculative trade category in the past 12 years. Hedge funds are particularly bearish on diesel prices as well, jumping on the bandwagon as prices approach their lowest levels in 3 years with the European Gasoil contract seeing its largest managed money net short on record, while ULSD is seeing the largest net short bets by the big funds since November 2015, when ULSD futures were trading around $1.35/gallon.

It’s worth noting that the last time hedge funds were this bearish on diesel 9 years ago, prices continued to drop to $.85/gallon in January 2016 before rallying back to the $1.70 range by the end of that year. It’s also worth noting that extreme positions by speculators are known to be reliable contrary indicators as when everyone gets on the same side of the boat, that’s when it tips over. It’s impossible to say when the tide of speculative money will turn, but with so much combined short interest, when the bidding does start, you can expect there to be some fast price spikes.

Marathon reported unplanned flaring at the Wilmington section of its Los Angeles refining complex. The Wilmington section is the smaller of the two refineries that Marathon combined to form the largest refinery on the West Coast with more than 365,000 barrels/day. Los Angeles basis values trailed their neighbors to the north by 45-60 cents last week as the debate over the state’s plans to force minimum inventory levels and cap refinery margins rages on.

While Gulf of Mexico oil producers race to return to normal operations following Francine’s landfall last week, the EIA this morning highlighted how 12 new projects coming online in 2024 and 2025 will help offset existing production declines in the region.

Baker Hughes reported an increase of 5 oil rigs drilling in the US last week, while natural gas rigs increased by 3 after reaching a 3-year low the week prior. The increase in drilling rigs was concentrated in the “other” basin category, while the Permian rig count held steady at 303, which represents nearly 52% of all oil and gas rigs in the country.