Oil Prices Down Around 6% and Refined Products Trading Down By A Dime

Energy markets are seeing heavy selling to start the week, with oil prices down around 6% and refined products trading down by a dime, after Israeli air strikes avoided hitting Iran’s energy infrastructure, and perhaps more importantly seem to have kept the latest round of tit-for-tat violence contained.

The long-awaited attacks kicked off Friday night, just a couple of hours after energy markets closed for the weekend, but as the dust settled it became clear that the measured response would give Iran an off-ramp to avoid further escalation. The subsequent sell-off when trading resumed Sunday night wiped out all of last week’s gains in just a few minutes, and the charts suggest we’re likely to see a test of September’s multi-year lows unless buyers step in quickly.

Adding to the bearish sentiment this morning: Reports that the Dangote refinery has shipped its first cargo of gasoline, as the world’s largest single-train facility continues to ramp up output, and add to the capacity overhang in the Atlantic basin.

Given the choppy price action last week, it’s not surprising to see a mixed reaction from large speculators in the CFTC’s weekly commitments of traders (COT) report. Money managers were adding new long and short positions in refined products last week, with an increase in the net short positions held in both distillate contracts, while RBOB saw a very slight tick higher in length. Crude oil contracts saw some modest reduction in large speculative length for both WTI and Brent, but the total open interest for Brent reached the highest level since April 2021. Given the size of today’s sell-off, it’s likely we’re witnessing more speculative funds throw in the towel on bets that the Middle East violence will push prices higher which will show up in Friday’s COT report unless the market makes a big reversal before tomorrow when the data is compiled.

Baker Hughes reported a decrease of 2 oil rigs drilling in the US last week, while natural gas rigs increased by 2. The Permian basin’s oil rig count held steady for a 3rd week at 301 active rigs.

Total reported an upset at its Port Arthur refinery Saturday, but did not specify the type of unit(s) impacted or the cause.

The new Clean Fuel Producer’s credit is set to replace the Blender’s tax credit January 1. The industry has been preparing for a drop in imports since the new CFPC was announced as part of the “IRA” law 2 years ago, but domestic producers are still unsure of how their carbon intensity scores will be calculated as the treasury has an apparent backlog of rulings to make due to the vast number of subsidies included in that legislation. Senators on both sides of the aisle in farming states meanwhile are urging the treasury to also block imported feedstocks from qualifying for the new law, once again proving that these laws are less about protecting the environment than they are about protecting the lawmakers that pass them.