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Energy View: Tuesday January 22

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Electronic trades yesterday were moving to the upside in the absence of markets closed in observance of the Martin Luther King Jr. Day. WTI managed to strike within a penny of $54 a barrel for WTI while Brent rose 12 cents to $62.83, the highest close for each going back to November and December respectively. Refined products also managed to gain a few pennies, but it was talk of Russia sticking to its commitment on reduced oil production targets and a slight decline in U.S. oil rig counts that kept Monday’s trades in a positive pose, carried over from last Friday.

Interestingly, normally bearish news that China’s economic growth fell to its lowest performance in 28 years would have led to a dramatic drop in the futures markets, but the recent turnaround in the stock market may be the main reason for crude’s advances in the early part of the new year. Still, with expectations for an overall increase in oil demand to approximately 1.3 million barrels per day for 2019 according to the IAE and OPEC, the resurgence in crude values has some merit.

The morning shows signs that markets returning from the long weekend are taking into account fresh negative headline news including data from the IMF which revised downwards its global growth projection for the year ahead from 3.7% to 3.5% and China’s 6.6% fall in growth has markets paying closer attention. In early trades, oil has given back over $1.29 a barrel, down 2%, while gasoline is off over 3 cents a gallon while diesel is holding at just under a 2 cent a gallon loss at the NYMEX.

For drivers, the long-awaited effect of oil’s recovery and stronger refined product prices are beginning to show up at the pumps. According to GasBuddy’s Live Ticking Average, the cost to fill up has almost a penny this morning and at $2.256 a gallon stands a penny higher than last week. For now, however, gasoline is still 7.3 cents a gallon below last month’s prices and 28.8 cents below last year’s values. For diesel, sitting at an average of $2.919, prices are now 2.9 cents cheaper than last year and 12.5 cents a gallon lower than a month ago.

Energy markets aren’t likely to dismiss the two big macroeconomic headlines today as they relate to and significantly impact the global economic outlook. Absent any major positive business headlines, the day ahead is destined for a weak finish that could spill over into Wednesday’s trades with Thursday’s delayed EIA inventory report widely expected to show another draw in crude stockpiles.

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