Look Out Below, Energy Markets Are Seeing Heavy Selling To Start The Week

Look out below. Energy markets are seeing heavy selling to start the week, pushing prices back near the low end of their recent trading range and threatening a much bigger slide of technical support breaks down. RBOB gasoline futures are leading the move lower, down more than 6 cents in the early going and trading just 8 cents above the 2-year low set in December. The winter storms sweeping the country this week are certainly not helping matters as many drivers are avoiding the roads.  

Saudi Arabia cut its oil price differentials to a 2+ year low, highlighting the ample supplies globally.  Meanwhile, Iran reportedly defaulted on oil shipments to China, demanding higher prices for deals apparently already completed. This could be playing into the Saudi’s hands, as they look to take back market share from the sharply discounted sanctioned barrels coming from Iran, Venezuela and Russia.  

After two weeks of heavy short covering, we saw a huge influx of new managed money bets on lower prices, with short positions in WTI and Brent increasing by more than 60,000 contracts in the latest report. That big influx of new money from large speculators suggests that the big funds are betting that the Red Sea drama is a red herring.  Today those funds look like heroes, if they were brave enough to hang on to those positions through the rallies we saw Wednesday and Friday last week. The money manager action in refined products was muted last week, with minimal changes for both RBOB and ULSD contracts.

Baker Hughes reported an increase of 1 oil rig drilling in the US last week, while natural gas rigs declined by 2. In total, there were 621 rigs active in the US last week, down from 772 a year ago. Oil rigs account for the majority of the decrease, declining by 117 of the 151-rig decline, but on a percentage basis Natural Gas rigs are down more, declining 22% vs 19% for oil. A Financial Times article this morning highlighted efforts by petroleum producers to combat the lack of qualified students joining the industry. Next week the Supreme Court is scheduled to hear arguments in 2 cases that threaten a 40-year-old precedent that could further alter the industry landscape.  Read this RBN blog post for an (excellent) overview of what’s at stake. 

Motiva is expected to shut the largest crude unit at the country’s largest refinery this week, as maintenance originally planned for the spring was moved up due to equipment challenges.  From a margin standpoint, this may turn out to be ideal timing as crack spreads are trading near 2-year lows. 

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