ULSD And RBOB Contracts Saw A 2nd Week Of Increases After Nearly 2 Months Of Selling

The recovery bounce continues for energy prices this morning with refined products leading the way with gains approaching a nickel just before 8am. RBOB gasoline futures are leading the way and are up more than 14 cents after hitting their lows of the year last Thursday. The bearish trend lines on the weekly chart are coming under pressure early but are holding their resistance for now, and will likely prove pivotal in the holiday-shortened trading week. 

Speculators continued to liquidate crude oil positions last week, but ULSD and RBOB contracts saw a 2nd week of increases after nearly 2 months of selling. The exception to the product buying was in the European Gasoil contract which saw a large decline in long positions, suggesting that the big funds have thrown in the towel on their bets of a cold winter driving up European distillate prices. 

Baker Hughes reported an increase of 6 oil rigs drilling in the US last week, the largest weekly increase since February. Don’t get too excited about a resurgence in drilling activity just yet however as the count of natural gas rigs fell by 4, keeping the total count of rigs just 2 above a 20-month low. The Dallas FED’s Texas Employment forecast published Friday also shows a slowdown in well permits in October, suggesting that producers weren’t rushing when prices were close to $90/barrel and will almost certainly take their time after prices dropped to $75.

Black Friday Beware: Thanksgiving is the only set holiday annually where spot markets won’t publish for 2 straight days. While the cash markets (and most offices will be closed) futures will continue to trade in abbreviated sessions both Thursday and Friday, with a settlement Friday. It’s worth noting that we’ve seen double digit sell-offs in refined product futures in each of the past two years between Wednesday and Monday’s settlements, and there’s typically a huge hangover effect on demand following the pre-holiday run-up.   

The Marathon Refinery in Texas City which holds the most TCEQ frequent flier miles with 37 reported upsets in the past year was having a good run, making it nearly a month before reporting 2 more process hiccups in 8 days. Neither event seems major, and based on the continued selloff in USGC basis values, no-one is too concerned about supply shortages.  There have been a handful of other reported upsets in the past week, but several seem to be involving unit startups after the busy fall maintenance season, suggesting more barrels are coming back online during these flaring events than being taken off.

Meanwhile, Marathon’s Martinez CA refinery reminded us that renewable production can be dangerous too after a weekend fire sent one person to the hospital. It’s unclear what impact the fire may have on the sites RD production, but the air-quality alerts were lifted overnight.

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