Energy Prices Retreat, Weak Economic Data Overshadows Supply Disruptions

Energy prices are pulling back to start the new week, failing to follow through on the strong finish we saw on Friday that pushed WTI and ULSD prices close to 3-month highs. The early losses seem pegged to more weak economic data overshadowing some disruptions to supply. Financial markets around the globe seem to be facing a similar tug of war as the world’s largest consumer continues to battle inflation, while the 2nd largest economy is facing the opposite concerns. 

Money managers were getting more bullish on crude oil last week, adding fresh length to Brent contracts, while slashing short bets on both WTI and Brent. The outlook from large speculators is more mixed for refined products with ULSD seeing a tick higher in bets on higher prices, while RBOB and Gasoil contracts both saw a healthy amount of new shorts added betting that prices will move lower. While open interest for crude and products has recovered from last year’s decade lows as the extreme volatility was too risky and costly for many, total outstanding positions remain below levels we saw at any point from 2015-2021.

Baker Hughes reported a net decrease of 5 oil rigs active in the US last week, bringing the total to a fresh 15-month low.  Natural gas drilling saw a big rebound, with a net increase of 11 rigs last week, 7 of which were in Louisiana. That increase in natural gas drilling snapped a 2-month skid that saw 37 rigs taken offline and dropped the total to the lowest since February of last year.

Gasoline basis values on the West Coast continued to rally last week with the 3 major spot markets all trading north of 30 cents/gallon above RBOB futures. Several unplanned refinery hiccups seem to be the driver of the basis rally and yet another unplanned flaring event was reported over the weekend in the LA area. 

On the other end of the spectrum, Chicago-area diesel has plummeted to a discount of 30 cents or more below ULSD futures as the summer demand doldrums in between planting and harvest season coincides with peak refinery runs as facilities try to maximize their gasoline output during the driving season. This phenomenon seems to happen once or twice a year as PADD 2 refiners often enjoy significant discounts for purchasing Canadian crude, so will continue to run the plants hard even though they may be taking losses to clear their extra diesel.

A major fire at a PEMEX oil platform in the Gulf of Mexico Friday killed at least 2 workers, with one still missing, and has shut in approximately 170mb/day of production. 

A vehicle fire at a Kinder Morgan terminal in Pasadena TX does not appear to be impacting operations at the company’s truck loading rack nearby which is one of the busiest racks in the city. 

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