WTI Shorts Down 50% From Start Of Year Undermining Short-Covering Rally In Energy Markets

Energy markets are ticking higher to start the week, with WTI and ULSD both breaking above the bearish trendlines that have held prices in check for most of the year. This breakout leaves the door open to a technical rally that could push WTI back north of $70 and ULSD above $2.30 if prices can hold their early gains. RBOB futures seem to be a reluctant participant in the rally so far, hanging out in the middle of their 2025 trading range creating a more neutral outlook on the charts.

Money managers were modestly bullish on crude oil contracts and bearish on refined products in the latest CFTC Commitments of Traders report, but the theory that short covering was driving the early price rally last week looks to have been wrong as short positions in Brent actually increased as of Tuesday, albeit at a slower rate than new longs in Brent. The outstanding bets on lower Brent crude prices is now at its highest level in the past 7 months, while short bets in WTI are now just half of what they were to start the year.

Large speculators were also mixed in environmental credit betting last week with California LCFS and Washington CCA credits seeing small increases in net length, while California CCAs along with both D4 and D6 RINs saw small reductions in net length. RIN prices bounced to end the week after another rollercoaster ride, while California’s LCFS values continued to plummet reaching a 1 year low at $43/MT on Friday. See charts below.

The drop in oil drilling activity continues to pick up pace with Baker Hughes reporting a drop of 9 more oil rigs last week, while natural gas rigs increased by 5. In total the oil rig count has dropped by 23 in just 3 weeks, marking a 5% decline. For the Permian Basin this is the lowest number of active oil rigs reported since November 2021, and the total U.S. oil rig count is at its lowest since October of that year.

Is the tear gas renewable? The protests and riots in Los Angeles don’t appear to be a threat to any refineries or other bulk fuel supply facilities with the clashed located 15-25 miles north of the cluster of refineries in the area.

A Reuters report this morning highlighted how California’s refined product imports have surged to a 4 year high in the wake of numerous refineries upsets this year, and those rates are expected to climb with two more facilities set to close in the next 9-12 months. Gulf Coast refiners appear to be getting in on the act by using Bahamas terminal and blending facilities to work around the Jones Action freight restrictions which make supplying California from domestic sources prohibitively expensive while inadvertently favoring shipments from India and China.