Energy Prices Left In Technical Limbo

After a bit of modest selling to start the overnight session, energy futures rallied following news late Sunday night that the president had signed the stimulus package he’d previously threatened to veto. Refined products were up nearly two cents for a brief time, but have since given back almost all of those gains and are trading near break-even levels. 

You can see the markets fixation on stimulus in the WTI/USD correlation chart below that shows the inverse relationship between the dollar and oil prices has reached its strongest level of the past three years.

This is typically one of the quietest trading weeks of the year, with many workers around the world taking extended vacations between Christmas and New year’s. Energy prices are left in technical limbo this week, just one strong day away from breaking out to new 10-month highs, but having had their upward trend broken during last week’s sell-off. That combination of low volume and lack of direction seems to set us up for some choppy back and forth trading. 

The CFTC’s Commitments of Traders report is normally released Friday afternoon, but was delayed due to Christmas and will be out later today. The ICE version of that report shows that money managers ended their streak of weekly increases to net length held in Brent crude oil contracts, mimicking the action in prices that finally saw a weekly decline after seven straight weeks of gains.  Those large speculators did continue adding to their long bets in Gasoil contracts for a seventh week.              

Also note the steady decline in swap dealer positions in gasoil contracts in the chart below, that suggests interest in forward hedging of diesel prices has waned since prices have normalized after the chaos witnessed in the spring.

Baker Hughes reported their weekly rig count ahead of the holiday break, showing 1 more rig was put to work in the short week, bringing the US total for active oil rigs to 264. That’s the highest level of drilling activity since the first week of May, up from a low count of 172 oil rigs in August, but still 50 rigs less than the lowest level counted during the previous 10 years.

A study from the Dallas FED details the negative impact surging COVID cases is having on job growth in the region, a phenomenon that’s no doubt playing out in other parts of the country as well, contributing to the ongoing slump in fuel demand. 

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