Traders Cautious As Energy Markets Begin To Rise Following 1-Month Lows Last Week

Energy markets are moving slightly higher Monday morning after erasing overnight losses. The choppy action with only minor results suggests traders are taking a cautionary approach after prices were pushed to one-month lows last week.

A meeting between U.S. and Russian leaders in Alaska is set for Friday and will be a key topic of debate this week, as the outcome could be material to a peace agreement or a big waste of time. Ukrainian drones have hit several Russian refineries over the past week, including one 2,000 kilometers from the border over the weekend.

The Renewable Fuel Standard turned 20 years old last week. RIN values were dipping to their lowest level in a month, Friday around $1.10/RIN for D6 values, but have started the week on a stronger note, bid at $1.13 as the industry debates the upcoming RFS final ruling from the EPA and the likely legal battles to follow with the change in import rules proposed.

Baker Hughes reported an increase of 1 oil rig drilling in the U.S. last week, snapping a 15-week stretch of declines that saw 65 rigs taken out of action, pushing the total count to a 4-year low at 410. The natural gas rig count declined by 1 on the week after increasing for the past 3 weeks.

Hedge funds were bailing out of their bets on higher energy prices in the latest CFTC report (with data compiled as of Tuesday, Aug 5th). The big 5 petroleum contracts all saw a reduction in both long positions and net length held by Money Managers, which is the large speculative category of traders.

Funds were slightly more optimistic on environmental credit prices last week, with D4 and D6 RINs both seeing small increases in speculative length along with California’s LCFS credits, while CCA’s in both California and Washington saw a small reduction in length held by money managers for the week.

The National Hurricane Center is keeping an eye on 3 different potential storm systems this week. The first two moving off the East Coast are given low odds of developing, but the third system moving off the West Coast of Africa is given 90% odds of being named. Fortunately, both the Euro and U.S. models seem to agree as of this morning that the system currently known as 97L will hook north before hitting the U.S., but any shifts west in the forecast this week could put Florida and the SE coast in play.