New Tropical Storm Formed Over the Weekend And Several More Refinery Upsets Reported

The energy rally lost its momentum last week, and we’re seeing chart support tested in early Monday trading as a result. ULSD is leading the move lower so far this morning and is threatening a break of its weekly trend-line around the $3.30 range. Prices are currently trading below that line, and if we see a settlement below that level the charts favor a push towards the $3 mark. There’s also about 7-cents of backwardation between the October and November contracts, so the technical pressure will only increase as we approach October’s expiration Friday.

For RBOB we’re seeing a test of the September lows around $2.55 this morning, with a break of that support setting up a 10-cent slide in short order, with a run at $2.25 looking likely as we move deeper into fall.  

Money managers showed a mixed reaction to energy markets last week with large speculators adding to bets on higher prices in WTI, Brent and ULSD, while reducing their positions in RBOB and Gasoil. The net length held by money managers in WTI contracts reached its highest level since February of 2022 last week, while Brent saw its speculative length reach a 6-month high. The drop in gasoil positioning is noteworthy as it is counter-seasonal, whereas the decline in RBOB bets and increase in ULSD are more what we’d expect to see this time of year as driving activity slows and heating demand starts to increase.

Baker Hughes reported a decline of 8 oil rigs and 3 natural gas rigs last week, bringing the total to a fresh 19-month low. So far, the steady decline in drilling activity hasn’t impacted domestic oil production in the official numbers, although there’s plenty of noise relating to what the EIA classifies as oil vs condensate to make accurate historical comparisons challenging. The big question for the balance of the year is whether or not $90 oil brings drillers back to the rigs?

After Ophelia battered the East Coast over the weekend, Tropical Storm Philippe has formed in the Atlantic – the 12th named storm in the past 5 weeks - but is expected to hook north and east similar to what we saw Nigel do last week, and not threaten the US coast.  There’s another storm system given 80% odds of developing in the next week in the same area, but early models suggest it too will stay out to sea. There’s another system being watched in the Gulf of Mexico, but it’s only given 10% odds of developing by the NHC.

There were several more refinery upsets reported over the past few days. An unplanned flaring event reported at Chevron’s Los Angeles area refinery late Friday promises to keep the West Coast basis rollercoaster rolling as we wind down the summer-RVP season, while upsets at Valero’s plant in Corpus Christi, another in a string of upsets at the P66 facility in Borger TX, and an unplanned shutdown of the Delek facility in Tyler TX have all failed to stir any buying interest. Of course, it seems like we can’t go an entire week without a reported upset at the beleaguered Marathon refinery in Texas City, with a coker unit at that facility tripping offline Friday. 

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