Another eventful trading session for diesel prices witnessed before 8am, while gasoline futures only managed a pedestrian swing

It’s been another eventful trading session for diesel prices with 11 cent gains and 6 cent losses both witnessed before 8 am, while gasoline futures have only managed a pedestrian 10 cent swing. Although product prices have pulled back sharply from their overnight highs, charts continue to favor higher prices in the weeks ahead, while fundamentals seem to offer demand destruction as the only option to end the rally near term.

The diesel contract lived up to its technical promise, moving sharply higher after breaking out of their triangle pattern on Thursday, reaching a high of $3.97 overnight before sellers stepped back in. The early morning trading has seen ULSD face a wave of selling even as RBOB and WTI bounce, suggesting there may be some spread unwinding taking place that’s holding diesel prices down after they rallied 75 cents in less than 5 days. 

Still cautious: Money managers continue to take only relatively small positions in petroleum futures and options as the extreme volatility we’ve experienced the past two months seems to be keeping many speculators on the sidelines. Open interest in refined products did see a healthy increase last week but remains near the lowest levels of the past decade.

Bullish or Bull headed? The producer/merchant category of trader has fewer short positions in diesel contracts now than they did in April of 2020.  Put that another way, diesel producers are hedging less of their production today when prices are near $4, than they were 2 years ago when they were less than $1. 

Baker Hughes reported a net increase of 2 oil rigs and 2 natural gas rigs active in the US last week, with Texas once again accounting for the majority of the increase. The White House announced over the weekend that it would resume oil leasing on Federal lands, although fewer acres are up for grabs, and royalty requirements have increased. 

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