Oil Prices See Largest Daily Selloff

A large increase in drilling activity, and perhaps a bit of profit taking, led to the largest daily selloff for oil prices since the Black Friday melt-down to end last week. That said, losses barely surpassed 1% on the day, and didn’t threaten the upward trend lines that have taken hold in December, and refined products still managed gains, leaving the chance of another breakout to the upside for prices near term.

It’s Christmas week so companies that are open are operating with skeleton crews and trading volumes are very light. This can mean more price volatility as trading algorithms were built to react in more liquid environments, but so far, there is very little action in futures to speak of and cash trade has been non-existent.

Baker Hughes reported 18 more oil rigs put to work in the U.S. last week, the largest weekly increase of the year. All of the gains came in the Eagle Ford and Permian basins of TX, while the other basins reported more declines. The suddenly large increase this close to year end – following steady declines all year – suggest there may be some operators choosing to activate projects to avoid lease expirations, or perhaps someone in charge of the weekly data just learned a new way of counting.

Money managers continued to add to their speculative bets on higher petroleum prices, adding net length across the board for a 2nd straight week. As we’ve seen with prices recently, RBOB is showing counter-seasonal strength, with more speculative bets on higher gasoline prices than we’ve ever seen this time of year. Brent and WTI are seeing managed length approach the highest levels of 2019, but remain well below the seasonal peaks set in previous years.

The congressional bill was signed by the President Friday night, so we’ll see a return of both the biodiesel blender’s credit, and the federal oil spill fee in the coming weeks. The oil spill fee will not be retroactive and will take effect on January 1, which is good news for the industry that’s proceeded without it for all of 2019.

Christmas Holiday Trading schedule: Tuesday, 12/24 will see early settlements and closing for NYMEX futures contracts and spot market assessments will follow suit. Christmas day will have no futures or spot market activity until futures resume in the normal overnight session for Thursday. Thursday and Friday will be regular days for futures and spots, except that fewer people will be around to participate. Rack prices published Tuesday afternoon will carry through Thursday.

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