The Search For A Floor Continues With ULSD Leading The Energy Complex With A Small Move Higher To Start The Week

The search for a floor continues with ULSD leading the energy complex with a small move higher to start the week, following the longest consecutive decline for oil prices in the past 5- years. Despite a healthy bounce on Friday, WTI and RBOB contracts both finished with a 7th consecutive week of losses, while ULSD ended down for the 6th time in the past 8-weeks. 

Cash markets across the middle of the country continue to add more downward pressure to futures with discounts surpassing 30-cents/gallon for USGC, Group 3 and Chicago diesel markets this morning, while gasoline contracts in those markets are all going for 20-cents or more below prompt RBOB even before we reach the winter demand doldrums.

Short squeeze coming? Money managers were making large wagers on prices continuing to fall last week, with Brent seeing more than 20,000 new short positions added while WTI added 8,500 and ULSD added 4,700. Put it another way: Some big funds waited until oil prices dropped for 6-straight weeks to a 6-month low, and then decided to put on 33,000 new contracts betting that prices would continue to fall. The last time the big speculators had this much money betting on lower WTI prices was in early June, and we saw WTI rally almost $20/barrel over the next two months.    

Baker Hughes reported a decline of 2-oil rigs active in the US last week, while natural gas rigs increased by 3, reaching a 3-month high. The slowdown in drilling activity isn’t slowing the pace of acquisitions, as Occidental Petroleum announced a $12 billion purchase of Permian producer Crown Rock this morning, the 3rd major deal in 2-months for the sector.

The DOE announced another 3-million-barrel solicitation to purchase oil for the SPR in March Friday. Previous solicitations have had mixed results and even if this one is successful, it would take more than 7 years to replace the barrels used last year at this pace. 

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