Energy markets posted a surprise gain yesterday with traders setting aside temporarily the trade tryst between the U.S. and China, allowing WTI to gain $2.30 a barrel to $68.96 and a $1.11 gain for Brent oil which finished at $73.45. Refined product also earned positive outcomes with gasoline gaining 2.5 cents a gallon while diesel catapulted ahead of gasoline to gain 4 cents on the day.
Much of the advance can be credited to money making as two days of losses were seen by some as overly discounted and an overreaction to geopolitical trade threats. The Trump administration’s roll back of the Obama emission rules on cars were seen a bullish for fuel consumption and the sudden realization of oil inventories dropping at Cushing were also factor contributing to the rise in energy markets, which carried through earlier this morning until another trade headline emerged from China.
In response to the U.S threat to raise tariffs over two-fold on $200 billion worth of Chinese exports, the Chinese government just announced its intention to impose differentiated tariffs on about $60 billion in U.S. goods once the U.S. acts to double existing levies on its exports. Combined with reports that China will reject U.S. oil sanctions on Iran, Saudi Arabia and Russia together, raising oil output 400,000 barrels a day and he shoulder season for North American refiners upon us, there is little wonder that energy prices are once again pressured this morning in advance of the first weekend of August.
For drivers, pump prices remain frozen at just below $2.89 a gallon according to the GasBuddy Live Ticking Average, but still 3 cents above last week and 2 cents higher than the previous month. On this day last year, gas prices averaged $2.34 a gallon or nearly 55 cents cheaper than today. Diesel continues its record run for summer prices, holding at $3.15 a gallon or 66 cents higher than August 3, 2017.
Much is being made of the ability of OPEC and its allies to meet the challenge of lower output from Venezuela and expectedly, Iran and even Libya. However, the increases in output come at the expense of digging into producing nations’ spare capacity, or rainy day reserves. News this week that U.S. output may have been overestimated by 3% is cause for concern as global demand for crude appears to be insatiable and likely to extend into 2020. It may also foreshadow a crunch in inventories that will see oil prices rise unexpectedly for many, perhaps beginning as early as this fall.