Rapid Tightening Of Fuel Supplies Around The World

It was a quiet start to the week with most petroleum contracts hovering near unchanged on the day after reaching fresh 3 year highs on Friday, as traders seem to be waiting to see the results of today’s OPEC meeting.  A sudden rally just before 8am central suggests they may be holding tight. The big question was whether or not the cartel & its new friends will change their plan to bring idled production back online slowly, given the rapid tightening of fuel supplies around the world since they last met, and while an official announcement isn’t out yet, the market reaction (so far) suggests they’re not changing course.

Not surprisingly, as prices have pushed to fresh multi-year highs, money managers continue to jump on the bandwagon, increasing their net length held in 4 of the 5 busiest petroleum contracts last week, with only ULSD contracts seeing a pullback in length held by the large speculator trade category. This influx of bets on higher prices from large funds can be a double edged sword for prices, as they can both exacerbate a short supply situation like we’re seeing in parts of the world today, but also create a snowball effect of selling once the hot money decides to head for the exits.  Short covering was the theme for RBOB contracts last week, as the money manager short position was cut by nearly ¼ in just one week as it appears the seasonal gasoline demand-slowdown trade may be overshadowed by the global supply crunch this year.  

Friday was another busy day for RIN trading, with multiple 10 cent swings up and down throughout the day, ending the day with double digit gains as the recovery rally from the fake RVO leak is now nearly completed.

Baker Hughes reported 7 more oil rigs were put to work last week, 3 of which were in the Permian basin, as the industry’s recovery starts to pick up steam. The total US count is now up 239 oil rigs vs this time last year, but remains 282 rigs below the count from this time 2 years ago.

A Dallas FED report last week highlighted how the Texas economy has been diversifying away from its dependence on oil, which should continue to fuel growth in the state in coming years. Right on cue, a WSJ article this weekend took a look at the progression of Exxon’s algae-based fuels. 

There are 3 active storm systems being tracked by the NHC this week, but none look to be a major threat to fuel supplies. The one with a chance of hitting the US coast is only given 10% odds of developing into a named storm.

Today’s interesting read: The wide variety of factors creating supply chain disruptions that are impacting everything from fuel additives to Christmas presents.

Click here to download a PDF of today's TACenergy Market Talk.