Energy Futures Retreating Lower After Strong Holiday Weekend

Energy markets are retreating Monday after a strong session leading into the holiday weekend. The about face after a weeklong recovery rally follows reports of plummeting travel to the U.S., and a major exporter getting on the political track to increase output.

The U.S. and Iran made progress in their negotiations towards a nuclear program agreement over the weekend, which would likely include an easing of sanctions that have limited Iran’s oil exports by varying degrees over the past decade. Meanwhile just last week the U.S. sanctioned a Chinese refinery for violating sanctions on purchasing Iranian oil.

Large speculators continued to bail out of the Brent crude oil contract after last week’s huge liquidation, dropping another 56,000 contracts of net length after losing more than 100,000 the week prior. WTI bets went the other direction however with money managers adding more than 41,000 contracts of net length on the week, likely encouraged by the Keystone pipeline shutdown and slowing domestic production. Refined products were a mixed bag last week with large speculators modestly selling ULSD and RBOB positions while Gasoil contracts saw a small increase.

D6 (ethanol) RINs traded up to the $1 mark for the first time in 18 months Thursday, before selling off modestly in the afternoon after the EPA published RIN generation data for March that showed RIN production rebounded after a sharp decline to start the year. D4 RIN generation saw an even larger drop in generation this year thanks in large part to the loss of the $1/gallon blenders tax credit and uncertainty surrounding the CFPC (AKA 45Z) program that replaced it. Biodiesel and RD production did tick higher in March, but remains well off its 2024 levels while the CFPC golden child SAF production actually declined for the month. See charts below.

Hedge funds were adding to long positions in both D4 and D6 RIN contracts last week according to the CFTC report, while California and Washington credits saw minimal change in money manager positioning.

Baker Hughes reported an increase of 1 oil rig and 1 natural gas rig drilling in the US last week. Despite the modest uptick in the national total, the Permian basin is holding at a 3.5 year low of 286 rigs.

Valero reported an upset in a Sulfur Recovery Unit at their Texas City refinery Friday that lasted just over 2 hours.