Markets Around The World Seeing Modest Recovery

Markets around the world are seeing a modest recovery bounce Tuesday following suggestions that tariff deals could be coming soon with some countries, even while the world’s 2 largest economies prepare for war ahead of tomorrow’s trade deadline.

Monday’s session was highlighted by a short lived spike in product prices after reports that the tariffs would be delayed 90 days, only to see prices quickly drop again once those reports were deemed to be fake news. The correlation between movements in equity and energy prices is holding near multi-year highs, which is indicative of a market being controlled by fears of economic slowdown that will hammer demand, as compared to a supply-focused market when the asset classes tend to go their own way.

While the price plunge over the prior 3 sessions hammered the stock prices of oil refiners and producers (along with most other industries) crack spreads have actually rallied during the selloff reaching an 8 month high this week. See charts below. Whether or not that recovery in cracks after 2 brutal quarters for refiners can sustain will depend in large part on whether or not demand starts to crumble as the tariff war escalates.

The forward curve charts below suggest there’s plenty of concern over slowing demand beyond the prompt markets, flipping the script for crude oil and diesel contracts after months of steady backwardation into a contango price structure 6-12 months forward, and the tick higher in crack spreads not lasting beyond the prompt month of trading.