Refinery Strikes, Shipping Attacks, And A Market Looking The Other Way

Energy markets are sliding to start the week as the U.S. President said he was “highly unlikely” to order fresh attacks in the war with Iran, which seems to have encouraged sellers on the prospects for peace even while the actual fighting is not slowing down. Whatever you may believe about the prospects for peace, the charts show the energy complex on the edge of a technical cliff, with another steep drop in prices likely if buyers don’t step in this week.

Just 9 days into the month and Ukraine has made 6 successful strikes on Russian refineries, compared to just 7 in all of October. Friday’s attack on the 343mb/day Ryazan refinery was confirmed, and 2 more facilities were hit over the weekend including Russia’s 2nd largest facility, the 404mb/day Kirishi refinery near Leningrad. Russia is once again being forced to ration gasoline sales following the stepped up attacks.

Ship attacks in and around Hormuz are continuing with the UKMTO reporting 1 ship attacked Friday, and 2 on Sunday. The agency also issued an advisory Saturday after U.S. Military forces disabled a vessel in the Gulf of Oman that was trying to bypass the naval blockade. U.S. CENTCOM also announced “Task Force Iron Gate” targeting Iran’s ground transit & Caspian sea routes that have allowed the country to continue shipping despite the naval blockade, which sure sounds like we should expect to see attacks on trucks in the near future. One thing to watch for, Ukraine has already demonstrated its ability to hit Russia/Iran trade ships in the Caspian sea, so they’re no doubt offering their service to assist the task force in exchange for things like Patriot missiles or relaxed restriction on Starlink offensive capabilities, as they did in October in exchange for stopping Russian refinery strikes.

Houthi attacks on Saudi infrastructure has picked back up after a brief lull last week, with reports that multiple Aramco oil facilities were targeted over the weekend, along with Riyadh’s main airport and financial district, including Aramco’s headquarters.

Heading for the exits: The CFTC’s Commitments of Traders data for the week shows significant long liquidation in energy contracts last week, and some new short positions added in WTI and Brent. In total, roughly 92,000 contracts held by large speculators betting on higher prices were closed out during the week in the big 5 petroleum contracts, representing about 22% of the outstanding total. It’s important to note that this report’s data was compiled as of Tuesday’s close, so this positioning was done prior to the election results, and shows that large speculators were already trimming bets that prices will move higher, making it likely we’ll see even more length liquidated in this week’s report after Wednesday’s big selloff and the failed recovery since.

Baker Hughes reported an increase of 1 oil rig and 1 natural gas rig drilling in the U.S. last week. The Primary Vision count of fracking crews active in the US increased by 4 on the week, snapping a 3 week decline that saw a dozen crews taken out of service. See charts below.