A Heavy Wave Of Selling Hit Energy Markets To Start The Week

A heavy wave of selling hit energy markets to start the week, as more demand fears seem to be driving a risk-off stance in markets around the world.

Beijing started mass COVID testing, which sparked fears that another one of the world’s largest cities would be locked down. Already the lockdowns in Shanghai have pushed Chinese oil consumption down an estimated 20% in April.

Slowing consumption is not just an international story anymore. A slowdown in US trucking demand is a concerning leading indicator for some, and a welcome change for others after more than a year of severe shortages in trucking capacity.

While demand fears are grabbing the headlines, supply shortages have not gone away yet, and we’re seeing more evidence of that today in diesel markets, both traditional and renewable. While most of the NYMEX futures contracts are seeing double digit losses this morning, May ULSD is down less than 3 cents, and trading nearly 36 cents above its June counterpart. Think about that for a second, diesel prices are worth more than 1 cent less every day in the near future given this extreme backwardation.

Biodiesel prices are surging to new record highs, and their RINs have rallied to their highest levels in more than 8 months last week, while ethanol & its RINs follow close behind. Indonesia announced a ban on palm oil exports to protect its domestic food supply, which sent shockwaves through the food and fuel oil industries which were already reeling from the war and weather-related supply restrictions. There was some relief this morning as the government clarified that the export ban only applied to processed oils, leaving crude palm oil available for export, for now. 

Money managers continue to take a cautious approach to energy contracts, with short covering by speculators pushing net length in Brent higher, while new shorts in WTI decreased the net bet on higher prices. Refined products also saw minimal changes on the week, and continue to see extremely low levels of open interest as risk managers apparently still telling traders “don’t touch that” after the record shattering volatility in March.

Baker Hughes reported a net increase of 1 oil rig and 1 natural gas rig drilling in the US last week. North Dakota took credit for the increase this week, giving Texas a week off as it prepares for a new boom cycle after record setting permitting in the region last month. 

There were a pair of noteworthy refinery fires over the weekend. One outside of New Orleans sent 8 workers to the hospital but is not expected to have a major impact on fuel supplies as the facility was in the midst of shutting down for planned maintenance. The other at an “illegal” refinery in Nigeria is reported to have killed more than 100 people in a shocking reminder of how desperate some countries are for fuel. 

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