MLK Jr. Day’s Quiet Start After Last Week’s Recovery Rally

NYMEX futures had their strongest week since October last week, with WTI, ULSD and RBOB all moving higher every day.  That strong rally came after the worst start to a year since the early 90s however, leaving the complex rangebound despite 5 straight days of steady buying.  

It’s MLK Jr. day so futures are trading in an abbreviated session and will not have a settlement.  It’s a federal holiday so banks and stock markets are closed and cash markets are not being assessed, so many in the industry will be taking the day off.  There isn’t much happening so far in the futures markets, so don’t expect many changes in rack prices unless something big happens in the next few hours.

RBOB did manage to push through to new highs for 2023 in Friday’s session, which opens the door on the charts for a run at the $2.80 level if it can hold above $2.50 this week.  ULSD and WTI have not yet been able to regain their 2023 starting values despite last week’s big rally, so the bulls still have more work to do if they’re going to regain control of this market.

It’s interesting that RBOB was the only contract to break through to new highs last week, as it was also the only contract in the petroleum complex to see an influx of funds from money managers.  All of the other contracts saw a drop in net length held by the large speculative category of trader, with long position liquidations the driver vs new shorts being added for most. 

The Swap Dealer position for WTI has reached a 5 year low in the past week which suggests that domestic producers aren’t hedging as much of their future production.  What we can’t tell from that figure is whether that means there’s newfound confidence that prices will remain at profitable levels for the foreseeable future, or if rising margin and interest rates are just making hedging cost prohibitive. 

Baker Hughes reported 5 more oil rigs working in the US last week, while natural gas rigs declined by 2.  The Permian basin lead the increases in drilling activity, adding 3 rigs on the week.  California was a surprise adding 1 rig on the week, bringing the state’s total to 5, compared to 379 for Texas and 103 in New Mexico.

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