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Energy View: Wednesday December 19

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Overarching fears of a global recession, rising FED interest rates and December markets posting their steepest losses for December going back to 1931 led crude to a disastrous close yesterday with the North American benchmark, WTI off 5%, down $2.64 to $46.24, its lowest closing since September 27, 2017. Dated Brent, too, suffered serious damage falling an even more noticeable $3.35 a barrel to end the trading session at $56.26 a price not seen since October 6, 2017. The losses in crude provided little comfort for fuels as petroleum products declined by nearly seven cents a gallon for diesel while gasoline took a 10.4 cent a gallon haircut which at $1.37 on the NYMEX, tested lows going back to November 15, 2016.

The morning gives little evidence of a rally, with more negative sentiment on the outlook for trade between the U.S. and China, a likely rise in interest rates with a FED announcement expected tomorrow and a bearish EIA petroleum inventory report which is likely to indicate U.S. crude stockpiles grew last week. Taken together, even optimistic moves by OPEC to cut back 1.2 million barrels a day, Alberta’s 325,000 barrel a day curtailment, both of which begin on January 1, are considered too far ahead to have any meaningful impact, especially given a record 11.8 m b/d output from U.S. producers and Russia reaching 11.4 m b/d last month. Taken as a whole, supply continues to rise as economic headwinds are seen as denting demand.

For drivers, the collapse in oil prices, now down over 40% from their early October highs, means more unexpected savings, just in time for the Christmas holiday travel. According to GasBuddy’s Live Ticking Average, median prices across the country stand at $237.8 a gallon which is 2 cents below last week’s average, 23.3 cents lower than a month ago and now 4.6 cents lower than pump prices a year ago. Diesel too has seen obvious declines, down 15.2 cents, but at $3.071 a gallon today, still 24 cents more expensive than this time last year.

While traditionally Wednesday energy onlookers await the EIA’s Weekly Petroleum Status Report, traders can’t be blamed for paying a little more attention to the outcome of the FED meeting and whether an interest rate hike for the fourth time this year will happen as many expect. Coupled with a lackluster or bearish stockpile report and ongoing fear of a global economic slowdown, energy markets aren’t likely to be able to post much of a rally to recover the lost ground from yesterday’s selloff. Expectations are therefore hat markets will end neutral and slightly to the downside.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.