Energy Prices Starting Week Soft With Indications Of Slowing Reopening Recovery From World's Largest Oil Buyer

Energy prices are starting the week on a soft note with losses of around 3 cents for refined products and $1 for crude, following disappointing GDP growth from China that suggests the reopening recovery in the world’s largest oil buyer has slowed, and oil production has resumed at Libya’s 2 largest oil fields which bring nearly 400,000 barrels/day back online.

The pullback that started Friday does help alleviate the overbought condition brought about by a 3-week-long rally that pushed prices close to a 3-month high, and it’s still too soon to say that run has come to an end. The $2.60 range should be a pivotal area for both gasoline and diesel futures this week to determine if we’re just witnessing a short-term correction or the end-of-the-summer rally.

Money managers were jumping on the energy bandwagon again last week with large increases in speculative net length added across the board. Short covering was also heavy on the week as those funds that had been betting on lower prices seemed to be throwing in the towel as prices broke out to the upside. From a historical perspective, the net length held by funds is still small, so there’s plenty of fast money that could still come into the energy arena if the recent uptrend continues.  These funds are notoriously fickle, however, so there’s certainly no guarantee they may continue to push prices higher.

Baker Hughes reported a decline of 3 oil rigs and 2 natural gas rigs last week, which drops the oil rig count to its lowest level since March 2022. The reduction in drilling activity was focused in the Permian basin, which saw a drop of 5 total rigs last week, and Texas saw a net decline of 8 rigs while New Mexico, North Dakota and Louisiana all increased.

The EPA denied all 26 small refinery exemption requests under the Renewable Fuel Standard Friday, consistent with the policies of the current administration over the past couple of years. The decision notes the reason, small refiners don’t face economic hardship due to the RFS….because the market price for these fuels increases to reflect the cost of the RIN, much as it would increase in response to higher crude prices.” Remember that when your state’s clean fuels program claims it won’t cause prices to go up. RIN markets didn’t seem to flinch at this news as the denials were widely expected.

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