With the Labor Day Weekend at hand and the transition to October contracts on energy markets, crude seems to have found its footing with WTI holding at above the $70 threshold at $70.08 this morning for the first time since Friday, July 15, while Dated Brent sits firmly in the mid $77 dollar range. Products have seen a recent surge in values also with gasoline gaining nearly 4 cents a gallon in value yesterday and diesel keeping pace with a slight gain on the day.
As motorists take to the roads, they do so paying the highest Labor Day weekend prices since 2014, when unlike today’s average of $2.84 a gallon, they were paying $3.43 in early September 2014. However, underlying today’s prices are a number of unusual factors that have few parallels as the summer driving season draws to a close; refineries are still running at elevated rates of output and many have apparently delayed seasonal maintenance to meet the apparent robust domestic and export demand. Diesel prices have remained consistently above gasoline throughout the summer, suggesting a breakout in prices for middle distillates lies ahead as colder weather approaches. Short of US-China trade jitters, there is ample evidence of a tightening of global crude supplies as the U.S. trade sanctions on Iran in early November sees its output drop by one third already. Concern is now being expressed in some quarters that the fall could see an active, if not delayed, hurricane season, beginning as early as mid-next week with the development of a hurricane in the Atlantic basin and disruptive weather in the shipping lanes in the Gulf of Mexico.
Noteworthy too was yesterday’s decision by a Federal Court in Canada to delay expansion of the Trans Mountain Pipeline that would give its oil an alternative outlet for Alberta oil and allow WCS crude access to global markets and pricing given it’s the world’s most discounted oil at $37 a barrel.
As markets have been accustomed to trading based on the latest headlines this summer, news today that the Trump Administration is looking to withdraw from the World Trade Organization (WTO) coupled with an additional $200 billion worth of Chinese imports, or 50% of all China’s exports to the U.S., is likely to continue keeping a check on oil prices.
For the day ahead, with all eyes on President Trump’s presser this afternoon, energy prices could be broadsided my fears of an escalating trade war that could prove harmful to global oil demand, send oil below the $70 benchmark and cause gasoline and diesel futures to slip a couple of cents before September contracts expire at the end of the trading day.