Petroleum Futures Hovering Near Breakeven Levels

It’s a quiet start to the week with petroleum futures hovering near breakeven levels as April trading winds down.

Adding to the general feeling of uncertainty that’s sweeping many global markets, OPEC and Friends appear to be having a bit of a falling out as Kazakhstan is reportedly bucking the alliance and continuing to produce at record levels, violating the terms of the cartel’s agreement.

RBOB gasoline futures settled above their 200 day moving average on the continuous chart Friday, which leaves the door open to a run towards at least the $2.20 mark, with a chance of making a move to the $2.34 peak set April 2nd before the tariff chaos began.

Money managers were making modest additions to their net length in most energy contracts last week as markets seem to be stabilizing after the chaotic start to the month. Short covering made up the majority of the change with nearly 40,000 short positions liquidated between WTI and Brent last week after prices bottomed out the week prior, while roughly 21,000 new long positions were added by large speculators between the two crude contracts. On a percentage basis, Gasoil (Europe’s ULSD equivalent) saw the biggest change with 2/3s of the net short position held by money managers wiped out on the week, while ULSD saw a small increase in the net short position held by large speculators.

Open interest in the Brent crude contract has surged in the past month, reaching its highest level in 5 years, which coincided with the COVID bottom where WTI went negative for a couple of days and Brent bottomed out at $16/barrel.

Money managers were acting modestly bearish on most U.S. environmental credits last week with D6 RINs, California LCFS and CCA and Washington CCA credits all seeing modest reductions in speculative length. The exception was the D4 RIN contract that saw a small tick higher in money manager length. It seems likely we’ll see a further increase in length held in both D4 and D6 RIN holdings in this week’s report as prices surged late last week (the weekly report data is compiled as of Tuesday and released Friday afternoon) following earnings reports that suggested RIN values must go much higher to get shuttered biofuel production back online.

Baker Hughes reported an increase of 2 oil rigs and 1 natural gas rig drilling in the U.S. last week. The Permian basin held steady with 286 active oil rigs of the 483 total in the country, and surprisingly California saw an increase of 1 rig last week bringing its total to a whopping 6, vs 278 in Texas and 100 in New Mexico.