Prices Have Recovered Most Of Their Early August Losses

Energy markets are rallying to start the week, shrugging off OPEC’s latest report that showed global oil demand slowing. Prices have recovered most of their early August losses, and now look to be in neutral technical territory short term, while longer term charts still suggest a chance of lower prices ahead.

OPEC’s monthly report cited a slowdown in China’s economy as the main reason for revising its demand outlook lower, but also notes that the growth rate of more than 2.1 million barrels/day over a year ago remains well above the long-term average. OPEC’s reports have been much more bullish than the IEA monthly reports as each agency does its best to talk its own book, so this reduction in demand is a noticeable about-face, but that’s not stopping crude oil prices from rallying for a 5th straight day. The IEA’s latest report is due out tomorrow.

Basis values in LA rallied Friday following multiple refinery upsets in the area. Energy News Today reported PBF’s Torrance refinery was forced to shut its sole crude unit due to a power trip Friday morning, while Marathon reported multiple unplanned flaring events at its Carson refinery Friday and Saturday.

Gulf Coast diesel basis is moving the opposite direction, with discounts to futures surpassing double digits for the first time in 6 months. The discounted prices in the Gulf Coast are pushing diesel line space values along Colonial back into positive territory for just the 3rd time this year. We may see the diesel sell-off pause to start the week after multiple refinery hiccups in TX reported to the TCEQ the past few days. Chevron’s Pasadena facility reported an upset in an FCC unit that required reducing run rates to minimize emissions. The P66 Sweeny refinery reported an upset in a coker unit, Total reported another upset at its Port Arthur refinery which has been a frequent flier on the TCEQ reports, and P66 Borger was reducing run rates after an upset in a sulfur recovery unit.

Time to be a contrarian? The CFTC’s weekly Commitments of Traders report showed that the panic was real last Monday with hedge funds slashing their bets on higher energy prices and adding new bets on lower prices as values were approaching their lowest levels of the year. OF course, as cooler heads prevailed later in the week many of those big speculators probably wanted a do-over. Short positions in RBOB and ULSD contracts reached their highest level since the COVID lockdown summer last week, while the net length in Brent held by money managers surpassed a 6-year low. Extreme positioning in either direction for hedge funds is typically seen as a contrary indicator and may provide a catalyst for a price rally if the big funds are forced to cover shorts or decide to return to the long side of the equation.

Tropical Storm Ernesto is expected to be named by Tuesday, and is forecast to reach hurricane strength later in the week. The good news is that the forecast models show this storm hooking north and staying well offshore as it moves up the east coast, giving states battered by Debby time to recover.

Baker Hughes reported an increase of 3 oil rigs active in the US last week while natural gas rigs declined by 1 and returned to the lowest total in nearly 3 years.