Both Energy And Equity Markets Higher To Start The Week

Energy and equity markets are both pointed higher Monday as the latest tariff exemptions, this time on electronics from China, suggest the U.S. President is more willing to deal than previously indicated.

OPEC reduced their oil demand forecast in the latest Monthly Oil Market report due to the negative fallout from the tariffs. The cartel did not make any comment on the U.S. negotiations with Iran and the potential impact on supply, even though many believe the plans to increase the group’s output at a faster pace is a concession to the U.S. President to avoid their own tariffs. OPEC & Friend’s output in March ticked modestly lower as declines from Iraq, Libya, Nigeria and the UAE offset Kazakhstan’s increasing production that has been violating the agreed-upon terms and become a hot button issue for the cartel.

Lost in the broader tariff war headlines has been a meaningful shift in the truck loads of fuel being hauled from the U.S. to Mexico. Fuel supplies across a broad range of Southern U.S. terminals went from tight to ample in short order last week after an apparent crackdown on illegal fuel imports into Mexico that have been bypassing taxes and costing the government an estimated $24 million (US) per day in lost revenue. Energy News Today was the first to report the sudden halt of fuel trucks crossing over the border as inspectors began verifying the contents of the trucks, many of which industry participants believe to be falsely labeled as water or additives to bypass fuel taxes. On Friday Reuters reported that Valero Mexico had its import permit temporarily suspended as they cooperate with an investigation. Rack spreads from South Texas to El Paso to Phoenix have all declined over the past week as that source of incremental demand appears to have suddenly disappeared.

As suspected, Money Managers were heading for the exits in energy contracts in a major way during the latest selloff. In total, the large speculative trader category reduced their net length held in the big 5 petroleum contracts by more than 240,000 positions, the largest weekly decline on record. Brent Crude saw the worst of the liquidation with a 162,000 contract net reduction on the week vs “only” 17,000 for WTI. While money managers were fleeing the market, others were joining with the open interest in both WTI and Brent surging on the week with at least some market participants seeing the panic as a good time to enter.

Baker Hughes reported a decline of 9 oil rigs last week, wiping out the prior 2 months’ worth of increases, while the natural gas rig count increased by 1. The Permian basin saw a decline of 5 more oil rigs on the week, bringing its total to the lowest level since December 2021.

Motiva reported multiple upsets at its Port Arthur TX refinery over the weekend as startup attempts on FCC and Alkylation units that have been undergoing maintenance for the past couple of months appear to have failed.