Market Sentiment Swings With Debt Negotiations

It’s a choppy start to the new week, with energy prices already moving back and forth from gains to losses a few times in the early going with the debt drama in Washington continuing to appear to be the key driver of price action.  

Friday saw a quick and sudden price drop following news that congressional negotiators had walked out of discussions over the debt ceiling, just a couple of days after optimism over those negotiations had sent prices sharply higher. The President and House Speaker are meeting again today, which could create another big move in either direction depending on the outcome, and with a June 1 “hard deadline” fast approaching, expect that story to be the main story until a resolution is found.   

Money managers continued to decrease their net length in oil contracts last week, with another round of bets on lower WTI priced being placed by the large speculative trading category (AKA hedge funds) while Brent saw a decline of more than 11,000 long positions. Funds are acting more bullish on refined products, with healthy short covering for ULSD, Gasoil and RBOB contracts last week, after it appears that prices may have found a temporary floor.

The open interest in ULSD contracts jumped up to its highest level since the start of the Ukraine war, as the return to more normal levels of volatility has allowed more players back on the field. Net length for ULSD held by money managers also moved back to a net-positive position after 2 weeks of being net short.

Baker Hughes reported a decline of 11 oil rigs drilling in the US last week, dropping the total rig count to the lowest level in a year. Texas led the decline last week with 9 of the 11 rigs shut down. Natural gas rigs held steady after last week’s huge decline but remain at their lowest levels in a year as well. A Bloomberg article last week suggests that a shortage of wastewater disposal capacity may be contributing to the slowdown in drilling activity around the Permian basin. 

The 650mb/day Dangote refinery in Nigeria is being “officially” commissioned today, roughly 7 years after it was originally scheduled to come online. The facility still isn’t “actually” making refined products yet, and the Grand opening is seen by some as political theater on behalf of the outgoing President, while others see this new facility as a game changer for the Atlantic basin once it does start producing.

Today’s interesting read: An in depth look at the opportunities and challenges for a waste-to-fuel refiner.

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