Energy Market Updates

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Demand Surge & Global Impacts

A massive increase in demand for gas and diesel stalled the downward correction we have been seeing as of late.  Adding to that, both finished products inventories fell last week, diesel futures took the lead and jumped up more than $.05 yesterday.  While we seem to be set for an early spring and hopefully a more robust construction season, the 15% increase in distillate demand has many scratching their heads.  Even with the latest increase, the 4 week average for demand on distillates is still relatively flat.  Gasoline average demand is still down about 3%, even after last weeks 6.4% increase.  Buoying pricing was also the first reported fatalities onboard a Commercial Vessel from Houti attacks in the Red Sea area.  A major global shipping lane, this latest attack will likely all but halt most vessels from entering the area.  The FED is in a holding pattern on rates, but have hinted that they will make “appropriate” adjustments in the coming months as inflation appears to be stalling, how that influences fuel pricing remains to be seen.  I would expect pricing to continue this sideways action and be somewhat range bound for the next week or so.

As we come out of the winter that wasn’t, it’s a great time to catch up on tank and fill maintenance.  DKB can assist on keeping you up to date on any new regs or products that may have hit over the winter.  For all our Marina friends, looking at getting a jump start to the season, keep in mind that DKB is the largest distributor of Valvtect Products in the Northeast. 

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Why the Surprise Down Day? The Devil is in the Details

At first glance of yesterday's inventory report you would assume that a solid up day was in the making.  As has been the case, the devil is in the details.  While all products showed modest drops, they were largely offset with massive exports, known refinery maintenance and switching to winter grade gas.  The largest market mover was the FED maintaining rates but signaling they expect possibly 2 more rate hikes in the coming months.  A large sell-off took hold pushing diesel futures down almost $.10 before settling down just under $.05.  The profit taking ideology is that if rates get higher, it dampens economic growth thus curbing overall fuel demand, add in that it makes it more expensive for foreign currency buyers of products. 

Additionally, truck tonnage was down 2.3% in August, marking the sixth straight month of year over year declines.  Many point to last year being a shipping anomaly coming out of COVID, but it is still hard not to take into account the declines.  Even though we are seeing a rebound today, expect a choppy downward progression as we close in on the winter months.  Speaking of winter….. It’s not too early to start thinking about winter product and the associated costs.  Availability of Kero as a blending component appears to be a concern for many.  Feel free to reach out to discuss how we can assist and also talk about pricing next year's needs. Schedule a Meeting

 

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Today's Tumble Offsets a Quieter Week for Crude

Image of various line graphics depicting the stock market scattered on a table

Before todays across the board tumble, the markets had been rather stable this week, comparatively speaking, even in the wake of several major relevant news events and economic reports. Let's start it from the top: 

Initially helping the markets, especially Wall Street - Fed Chair Janet Yellen's comments this Wednesday stated that the Fed would be cautious moving forward, particularly on the subject of inflation, as it keeps an eye on possible foreign market pressures and the extremely mixed-signals economic data that has come out over the past few months. Historically, March jobless numbers come in 40-50K below projections oftentimes, so her comments earlier this week were also seen as a possible hedge against concerns about Wall Street's reaction to Fed policy in the event of a less than stellar jobs report (which did not come to fruition - more on that later). 

The Fed comments didn't help the Dollar on the day, however, which helped keep commodities flat after builds, albeit smaller than expected builds, in U.S. stockpiles. 

Regarding those builds -  Wednesday's weekly EIA Inventory report showed Crude built less than analysts had projected (2.3 mmb versus 3.3mmb projected). Initially Crude was up 2.5% on the reporting, with WTI hitting $39.30 and Brent cracking $40 at $40.17 shortly after.

However, at the close, WTI settled within a penny of the prior day's close at $38.32. ULSD and Gas also showed draws, 2.5mmb on gasoline (which was close to projections), and ULSD drew down 1.1mmb versus a projected 29K build. Both ended the day relatively flat alongside Crude, with ULSD closing at April $1.1597/May $1.1721, and gasoline April $1.4364/May $1.4661.

The major news is the continuing speculation over the OPEC/Non-OPEC meeting (supposedly) coming in April that could result in an agreement on a production freeze in order to stabilize global oil prices.

However, the lingering question has been whether or not Iran would agree to freezing production after the sanctions against the country have just been lifted. It appears more certain by the day that the answer to that question is "NO". The Saudi Oil Minister Thursday night stated that if Iran will not agree to the freeze, basically there will not be one. This of course came on the heels of Iran insisting earlier in the week that it can, and will, consider going back to pre-sanction production levels. 

Personal opinion - there will most likely not be a freeze. In my humble opinion the markets got far too excited and bought too deeply into what, at least to this point, has essentially been rumor and wishful thinking. The ramp up in pricing we've seen over the past few weeks, with WTI breaking $40/bbl (very briefly) is largely a response to the hopes pinned on the OPEC meeting and a belief they will freeze production -a belief that is most likely not founded in reality, but time will tell. If nothing else, the rumors have temporarily "stemmed the bleeding" for major producers, not a terrible end in and of itself from their perspective. 

Thursday was uneventful, with WTI settling 2 cents over prior at $38.34. It was the expiration of April trading, obviously, and May ULSD and Gasoline closed out at $1.1855 and $1.4467, respectively.   

This morning we saw that the  Friday Jobs report pessimism/conspiracy theorism discussed earlier turned out to be for naught.  Analysts had projected gains of 205K jobs for March and the government data came out with a gain of 215K, leaving the unemployment rate at 4.9%. 

The good news is, that's a great jobs number. The bad news for commodities is that number serves to further prop the dollar up, as it maintains the highest level its held versus the Euro in a little over 6 months. (This despite the dollar's slip on Wednesday). 

Both the dollar and stock markets were up today on the strong Jobs report as well as encouraging data from the Manufacturing sector, indicating continuing economic strengthening in the U.S.

Oil however, took a 4% tumble on both a stronger dollar, and (as previously mentioned) increasing skepticism on the OPEC deal. Skepticism on the deal grew exponentially today, after the Saudi Crown Prince today echoed his Oil Minister's earlier sentiments about a needed consensus including Iran in order for a production freeze to become material. 

Baker Hughes rig count today indicated Crude rigs dropped 10, and overall rig count dropped by 14 to a new record low of 450, but oil continued to trend downward. 

At the Close, Crude settled out at $36.79 (-$1.55), ULSD tumbled .0538 to $1.1317 and gas fell .0451 to $1.4016

 

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Standing Headline: Fed Talks,Chinese Economic Data Pummel Stocks,Crude

Man grasping his head looking at computer screens

WTI dropped 2.8% today to close out at $44.43 a barrel, while Brent closed out down 2.5% . On the refined products side of the NYMEX, ULSD and Gas both took a pummeling as well, with both down over 4 on the day. To be exact, ULSD closed out down (-.0453) to 1.4772 and RBOB closed down (-.0471) to 1.3488.

So whats going on?

For one, the news from China today was that industrial companies there have seen profits plummet at a faster level than they have in four years, resparking speculation that China's economy is really struggling a lot more than everyone has been assuming. As previously discussed, Chinese economic data is such a huge indicator because they are a top commodities consumer, and strong economic data from China is basically what traders and analysts are "hanging their hat on" as a potential for growing demand to stave off the price crushing effects of the oil glut.

The IMF Managing Director also announced today that although the economy was still recovering from the recession, the pace had decelerated, and the 3.3-3.8 GDP goals for 2015 & 2016 were now "unrealistic". This in combo with the bleak Chinese data pushed crude down quickly both overseas and domestically. 

In related news, Shell announced today that they will be pulling out of Arctic drilling exploration in Alaska. This is primarily a result of the sustained drop in oil prices, and follows a growing trend industry-wide. Over half of American rigs have been decomissioned, and investment into new oil sands projects and new gulf drilling projects has dropped substantially.

Simply put, theres just too much oil out there now to invest huge sums of money into procuring even more of it.  

Wall Street took a beating today as well on Chinese data, the IMF remarks, and continued rumor milling over the timing of the Fed Rate hike. The president of the NY Fed suggested it could happen as soon as October, where others have speculated December was the likely target date. So once again, Fed talks and the resultant speculation, combined with some more "surprise" bleak economic data hammered stocks today - which is starting to seem like a standing headline at this point. 

Stay Tuned!

 

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Fed Uncertainty and Major Layoffs Spook Wall Street  

Stock market numbers

Stocks are getting pummeled today in anticipation of Fed Chair Janet Yellen's scheduled 5 o'clock speech on the economy and Fed policy re: rate hikes. (Deja vu anyone?). 

Today Caterpillar announced that they will be both revising sales projections down and cutting 10,000 jobs by the end of 2018. That announcement is really crushing stocks, because Caterpillar is seen as an indicator of strength or weakness in the industrial and manufacturing sectors given their size and dominance in the sphere of heavy equipment. To the traders on the Street, less demand for Caterpillar implies fewer large scale construction projects coming online, which is obviously not good news for the economy.

Their announcement is also not a good sign for diesel usage increases, either,  which we need in the face of oversupply and the resultant continually dropping prices. 

On the other hand  - first time jobless claims were up 3,000 to 267,000, not a bad job market indicator, and new home sales beat estimates, both of which are positive signs. 

Ironically, what some analysts are saying is that these positive indicators signal that we can withstand an increase - and the panicked selling off is essentially coming from a concern about why we did not see the Fed move forward with the anticipated rate hike last week. If the market looks like it can accept it, then not passing the rate hike essentially implies the Fed is concerned about economic strength despite positive signs, and this is apparently making traders very nervous. 

On the commodities side, the EIA report out Wednesday showed inventory draws of 1.9mmb on Crude, draws of 2.1mmb on distillates, and a build of 1.4mmb on gasoline. We actually saw drops at the close however, despite the inventory draws, with WTI settling at 44.48 for November (Brent at 47.82), ULSD for October delivery closed out at 1.5056 (-.0264) and RBOB was down (-.0348) to 1.3816. 

Today, the NYMEX was mixed throughout trading - up on diesel, down on gas, neither straying too far from the open. At the close, ULSD settled up (+.0181) to 1.5237, and gas settled out (-.0164) to 1.3652.

Expect another possible crazy day tommorow, depending on how the Fed Speech goes, and how traders and analysts interpet its likely short term implications. 

Stay tuned!

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