Energy Market Updates

Happy Friday!

We are ending out a mixed week on the NYMEX today, to put it mildly. Monday & Tuesday were both substantial down days with the market shedding over 4 cents (.0433 and .0473, respectively) on ULSD both days, and landing Crude at $55.21 at Tuesday's close. 

Wednesday & Thursday however, saw the NYMEX jump up substantially.

Wednesday's inventory numbers fell short of expected builds and we saw intraday highs over 5 on refined products, with the close reflecting +.0347 on ULSD ($1.8921) and +.0526 on RBOB ($1.6563) and Crude closed at $57.11. 

Thursday gains were around 2% with ULSD closing up +.0526 to $1.9447, RBOB +.0481 to $1.7044 and Crude up to $58.58, a two month high. 

Today we saw the market shed some of the week's earlier gains, with ULSD down -.0153 to $1.9294, RBOB off -.0301 to $1.6743 and Crude closed out at $57.77, about back where it was Wednesday mid-morning. 

So what's going on? Good question. It seems a lot of the back-and-forth action this week (and for a few weeks prior) has primarily been the result of ongoing speculation and reaction on three repeating themes 1) China-US Trade War 2) OPEC Cut questions 3) Global economic concerns.

Essentially we have been bouncing up or down based on reaction to inventory reporting, economic reports, rumors of progress then retreat on ongoing China-US discussions, tariff delay questions, and uneasiness about what OPEC may or may not announce regarding cuts at their December 5th meeting. 

Hopefully there is some solid direction on any of these questions over the next few weeks, or it's anyone's guess when the see-saw action will subside. Until then, it's Deja Vu all over again, as they say. 

Stay tuned!

The NYMEX tumbled back down today, erasing Friday's rally. At the close, ULSD shed .0546 to $1.8356, and RBOB dropped .0635 to $1.7180, with Crude closing at $54.69, which puts us back in the territory we saw on Thursday, essentially. (We were $1.8529, $1.7499 and $53.95 at the close Thursday after record slides).

The NYMEX wasn't the only market down today, as global stock markets slid on US/China trade war tensions.

So today, China threatened retaliatory action after the Trump Administration did not back down from tariff imposition threats. And then (stop me if you have heard this one before) Chinese currency hit suspicious new lows against the US dollar, which prompted renewed accusations of currency manipulation on the part of China by President Trump, which didn't sit well with Wall Street, who is looking for any sign of hope that tariffs and a potential full on trade war are not looming on the horizon....And then everything tumbled across the board, from the Dow Jones to the Nikkei. Phew. 

Bank of America also announced today that should China choose to purchase Iranian oil in response to US Tariffs, we could see oil tumble to "$20-$30/bbl" (although they did not revise their 2020 prediction of $60/bbl). The decision to purchase from Iran would serve to both weaken the impact of US backed sanctions on that country, as well as take a substantial amount of the impact out of the tariffs imposed on China. However, the move would not be without consequence, as Iran would be stepping outside the agreed upon production cut strategy in the region and that would likely not go over well with their neighbors (particularly Saudi Arabia) and would essentially force a heavier partnership than China may be interested in maintaining.

On the fundamentals, supply is still vastly outpacing demand, and economic indications continue to suggest that global demand will continue to soften. Whatever does or does not happen in terms of shorter news cycle events - seized tankers, trade disagreements, etc, the fundamental supply/demand levels will ultimately dictate a large portion of where crude & refined products settle out.... at least until another short term cycle event throws a wrench in the gears.

Stay Tuned!  

Markets rebounded somewhat today from yesterdays massive slide.

Brent & WTI both closed up 2.7% today (to $62.07 & $55.40, respectively) after each saw the greatest single day slide in over three years on Thursday. 

At the close ULSD was up .0373 to $1.8902, RBOB up .0316 to $1.7815 and WTI at $55.40. 

So what's going on? 

Analysts are accounting today's rally to the idea that yesterday's sell-off was probably more extreme than was warranted, so some of the rebound is simply a re-balancing of sorts.

The other assumption is that the Trade War concerns brought on by yesterday's Presidential tweets and the potential impact of looming tariffs on the economy may have been an overreaction. Time will tell on that one. 

Overall it's a little hard to tell whether we are returning to range bound numbers or waiting for another shoe to drop, as a lot of the usual "leading indicators" are mixed.

The US economy expanded 2.1% in the second quarter, which beat analyst predictions - but also fell short of Q1 numbers.The jobs number was up - but not as strong as was hoped, and the unemployment rate is low - but unchanged from prior month. The economy expanded - but manufacturing activity and construction spending fell.

Oil production levels in the US are expected to surpass records, while OPEC cuts production to bolster prices. 

Each of the factors we usually consider is somewhat counterbalanced by another. 

It will be interesting to see how things begin to shake out.

Stay tuned!

Oil & Refined products all plunged today on a series of events. Both Brent & WTI were down over 3% this morning, and by 2pm refined products were down over 11 cents.

At the close, ULSD was down .1178 to $1.8529, RBOB shed .1129 to close at $1.7499, and WTI Crude was $53.95, down from $58.58 at the close yesterday.

Yikes.

So here's what appears to be going on in a very basic nutshell:

The Federal Reserve announced a single rate cut of 0.25% versus the series of cuts expected to be coming down the road. The interest rate cut was expected to begin a series of cuts to shore up the domestic economy against global economic concerns about general weakness but evidently will be a one shot deal. 

The dollar hit two year highs post Fed announcement, and oil crashed as a result. 

U.S. supplies were down for July and OPEC production hit record lows (below 2011 levels) as a result of the OPEC+ deal, which normally would serve to boost prices, or at least hold them steady. However, global supply & output levels are still very high, particularly from the United States, and additional influxes from former member nations who opted out of the OPEC+ production cut agreements. (When combined, that's an offset of around 12mmb per day against the cuts by OPEC countries) 

Finally, this afternoon, the Trump Administration announced abruptly that effective September 1, the US would impose a 10% tariff on an additional $300 billion dollars of Chinese goods. Not exactly helpful for allaying concerns about global trade, the global economy, or weakening demand, to put it mildly.

The announcement came out later in the day, so we will have to see how the markets shake out tomorrow - whether the demand concern seeming to dominate now holds out, or if we flip the markets the other way on overall economic concerns tariffs can raise. 

As always, stay tuned & feel free to reach out if you have questions. 

Prices surged this morning after a slow down on Friday, on news from the G20 Summit that Russia and Saudi Arabia have agreed to extend the OPEC+ production cuts by another 6-9 months. The agreement still needs to be ratified at the upcoming OPEC meeting, but that is essentially a formality at this point, given Russia & the Saudi's are in agreement. 

The demand side of the equation also got a boost from the announcement by President Trump that no new sanctions would be put in place on China, at least for now. Speculation on potential tariffs has been a cloud over trading for several weeks. 

Markets were up huge this morning, with gas briefly up over 5 cents and diesel not far behind, and Brent Crude up over 2%. It calmed over the trading day however, and at the close we saw ULSD +.0144 to $1.9538, Gas up .0339 to $1.9305 and Crude settled at $59.09

Looking backward, despite closing down on Friday, the month of June was up 9% on concern about Iranian-US tensions, Chinese tariffs, and the OPEC/G20 production discussions. Now that some of these have evidently been resolved, at least temporarily, it will be interesting to see what July holds for market moves. 

Stay Tuned!