Energy Prices Fall On Recession Fears And Tariff Disputes

Market TalkThursday, Aug 15 2019
Energy Complex Trading Lower on OPEC news today

The weekly inventory report published by the Department of Energy yesterday helped temper Wednesday’s selling enthusiasm by undercutting the anticipated crude oil stockpile build, a precedent set by the API late Tuesday, and showing drawdowns in refined product stocks by 1.5-2 million barrels each. However, recession fears surrounding the US economy and further hostile comments out of China regarding tariffs kept the downward pressure on energy and equity prices, forcing refined product prices largely lower for the day. Gasoline futures lead the complex taking a 6 cent hair cut while lagged behind losing around 3.5 cents. European and American crude oil benchmarks fell in lockstep, both trading down 2.6%.

Despite Monday’s attempt by the White house to ease trade tensions among consumers ahead of the holiday season, China responded this morning stating the delay wasn’t enough to stave off retaliation. The news has sparked some additional selling this morning, pushing futures below where they started the week, wiping out Monday’s sizeable gains.

The recession signal triggered yesterday has since remedied itself for the time being, keeping further selling in equity markets at bay so far this morning. The 10/2 year yield rate is once again in positive territory after inverting yesterday morning for the first time since 2007. The worst may still be yet to come as data going back four decades indicates a recession typically follows a 10/2 inversion by about 2 years, on average.

Technical data has presented itself as a tricky read so far this month, with political and economic tensions whipsawing energy futures with the days’ headlines. RBOB seems to be on the precipice of a technical breakdown while sitting near 2019 lows. A break below some technical support showing up on the weekly chart would call for some heavy selling, resulting in the benchmark revisiting lows not seen since last winter. HO futures have a more tame outlook as they are set to test support about a dime lower.

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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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