A Sell-Off In Equity Markets Seems To Be Outweighing Supply Concerns Again To Start The Week

A sell-off in equity markets seems to be outweighing supply concerns again to start the week as energy contracts have turned from 2 cent gains overnight to 2 cent losses this morning as US equities moved deeper into the red following their worst week since the start of the pandemic.

The pen is mightier than the sword?  The selling seems to be largely driven by expectations that the FED and other central banks are ending the money printing party and will soon raise rates to combat inflation, which for the moment is outweighing concerns that armed conflict may soon disrupt the flow of global energy supplies.

The march to war in the Ukraine seems remains the biggest story with numerous threats to both lives and markets. Read here for a list of possible market impacts expected should the invasion take place. 

The IEA last week made a case that Russia’s withholding of natural gas had more to do with the price spike last year than the conversion to lower carbon fuel alternatives, and urged the world to learn a lesson from this, highlighting the growing threat from limited lithium supplies as EV’s gain market share.

Meanwhile, the existing war between Arab nations and Houthi rebels continues to add another level of concern as another missile attack on the UAE this weekend reminded the world that some of the largest oil producers are still trying to kill each other. 

Money managers continue to add to their bets on higher petroleum prices with 4 of the big 5 contracts all seeing net length held by the large speculative trade category increase again last week. Reuters’ John Kemp argues that chronically low inventories are encouraging these bets on higher prices, which suggests they may continue for some time. (see the Commitment of Traders Report table & charts below)

Baker Hughes reported a net decrease of 1 active oil rig working in the US last week, the first weekly decline since October. The EIA on Friday reported that its forecasts suggests oil and natural gas output in the US should continue to grow and reach record highs next year.

Today’s interesting read, from the WSJ: The flaws in CAFÉ standards that will continue contributing to strong fuel demand.

Click here to download a PDF of today's TACenergy Market Talk.