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Energy View: Thursday April 4

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Energy markets failed to extend their winning streak beyond three days after a less than spectacular EIA weekly petroleum supply report showed a bigger than expected 7.2 million barrel build in crude supplies, attributable to ongoing Houston channel logistics challenges, a slowdown in refinery runs due to several notable disruptions and a smaller draw on gasoline and diesel stockpiles than the consensus by analysts.

This morning all energy indicators are pointing slightly down as the big news headlines of a possible positive outcome to U.S. China trade tariff discussions begin to take shape with a head of state meeting planned for President Trump and Xi in the near future. Traders may also be absorbing reports that shale producers are facing headwinds in terms of financing since many are producing oil at or below breakeven prices, which could spell trouble for the longer-term viability of some players. Still, with summer demand season looming and a more positive economic outlook pending a trade agreement with China, oil and petroleum prices may only be in a temporary holding pattern.

Drivers have no doubt noticed the better than 50 cent a gallon rise in pump prices since the beginning of the year and according to GasBuddy’s Live Ticking Average, at $2.727 the cost to fill up is now 2.6 cents higher than last week and 29.3 cents a gallon more than just a month ago. Little wonder that even though gas prices were on the march this time last year they are no match for the 6.6 cent premium paid today. For diesel, the fuel that supports the economy, at $3.037 a gallon moving freight is also 6.3 cents higher than this time last year.

Markets aren’t likely to break out today until further evidence of supply constraints and definitive news on a trade breakthrough between the U.S. and China is forthcoming. The day will likely see crude and diesel end slightly higher while gasoline is likely to slip making the remainder of the week’s two more trading days likely to determine the overall performance of the market for the week on balance. Of note for longer term forecasts on oil was the revelation by Saudi Aramco that, as part of its public offering for the first time in over 40 years, its large Ghawar complex, thought by some to have a possible output capacity of 5.8 million barrels a day, was in fact a scaled back 3 million barrels a day.

A small tidbit of information that could prove more than incidental in the future when total global oil inventories and production issues emerge. Talk of peak oil may not be a thing of the past as many may believe.

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