Energy Market Rallying With U.S. Sanctions On Russia's Energy Industry

Energy markets are rallying to start the week with new US sanctions on Russia’s energy industry and a major escalation in the war with Iran’s proxy forces over the weekend.

Today’s gains, coupled with a strong Friday session, are pushing off the chances of a technical breakdown targeting sub $2 refined products near term, although the weekly and monthly charts still suggest there’s more selling ahead unless this recovery rally can take out the March highs.

The parade of upsets continue for LA-area refineries as PBF Torrance reported 3 different unplanned flaring events over the weekend and Chevron El Segundo reported one. Basis values shot higher last week as 4 out of 5 area refineries were dealing with some level of unplanned maintenance which turned multiple refiners that are typically spot sellers in the market into buyers. That phenomenon also led to wider rack spreads for inland markets fed from LA, with rack spreads in Phoenix and Las Vegas approaching their widest levels of the past 18 months.

Multiple refinery hiccups across South Texas are keeping supplies tight across the region. The San Antonio to Odessa rack spread used to be a good indicator of the arbitrage for long haul trucking when the Permian activity was ramped up, but is now negative as drilling activity has slowed over the past couple of years while export demand has surged.

Money managers decreased their net length in most petroleum contracts last week, albeit in very different ways. RBOB and Gasoil saw increases in both long and short positions, with new shorts totaling more than 25,000 contracts between them vs just 3,500 contracts of new length. Brent and WTI saw reductions in both speculative long and short positions, with short covering of more than 30,000 contracts narrowly edging out nearly 25,000 long contracts being liquidated. WTI was the lone contract to see a net increase in speculative length for a 2nd week.

In environmental credits, hedge funds were making small additions to their net long positions in California’s CCA and LCFS contracts along with D4 RINs, while D6 RINs and Washington CCAs saw minor reductions.

Baker Hughes reported a net increase of 1 oil rig active in the U.S. last week, while the natural gas rig count dropped by 1. The rig counts for both oil and gas have been more or less stagnant for the better part of a year now as increased efficiencies have allowed record production levels without the need for “drill baby drill.”

Motiva reported an upset in a hydrocracking unit at its Pt Arthur refinery over the weekend. The event only lasted a couple of hours and didn’t appear to impact other units, which suggests minimal if any impact on USGC basis values.