Energy Prices Slide Amid Sanctions, Positive Economic Outlook

Diesel prices are once again leading the petroleum complex lower, dropping more than 10 cents overnight as natural gas prices tumble to an 18-month low, and adding to the sentiment that another energy crisis will not only be avoided this year, but perhaps next year as well. 

This latest move looks particularly bearish for crude oil prices, with a good chance we could see a slide to $72 for WTI if prices can’t manage to rally later today. So far refined products look less bearish on the charts, but if they take out the February lows about 5 cents below current values for ULSD and 10 cents lower for RBOB, the door is open for another 20-30 cent slide.

Last Friday, an announcement that Russia would cut oil production by 500,000 barrels per day helped spark a sharp but brief rally in energy prices, a move the IEA says is proof that sanctions are having their intended effect. This week reports suggest the country would not need to cut exports to reduce oil production, it could simply supply less to its domestic refineries, which seems to be contributing to the selloff, and will no doubt be seen as a sure sign that the diesel embargo that started Feb 5 is having at least some of its intended impact.

China continues to be the main beneficiary of Russia’s energy follies, and a Reuters report highlights how the country is set to reach record oil import levels thanks to the reopening economy, and new refineries reach to pump both domestically and abroad. 

A surging US dollar is also getting some credit for the latest sell-off, as positive economic data and stubborn inflation levels reported this week suggest the FED will be forced to continue its rate increases, and another 50-point increase could be back on the table. The correlation between daily moves in energy and currency prices remains fairly weak however, so this probably isn’t as big of a factor as it was in past years. 

Speaking of which, the relationship between stock markets and energy prices has been very weak for the past 6 months or so, so while it’s still possible that this week’s selling in equities could be carrying over into the move lower in energy prices, it’s probably not the main factor.   

We have not seen any commitments of traders data from the CFTC for going on 3 weeks, following a cyber-attack on ION markets, which is a 3rd party service provider for certain derivative contracts. So far there are no new updates on the situation since February 10th, but we should hear one way or another later today as the report is typically scheduled to be released late on Friday afternoon.

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