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Energy View: Wednesday March 20


What’s old is new again. The seemingly forgotten worry over U.S. – China trade negotiations have returned to the forefront and is being given top-billing by energy traders this morning after China indicated it wasn’t thrilled by with American trade demands and uncertainty as to the President’s commitment to removing existing tariffs on Chinese exports once a deal is reached. Still, a bullish call by the API that suggests gasoline and crude inventories are likely to draw by over 2 million barrels and a lesser 1.6 million for diesel in today’s EIA Weekly Petroleum Inventory Report and a surprise declaration by the White House that higher crude prices may not necessarily be a bad thing, seems to be blunting the fallout on trade worries.

Despite trade negotiation jitters, there is a developing consensus that absent major geopolitical tensions and strengthening ties between Iran and Iraq, a scenario that would see crude prices move higher could be seen as beneficial to U.S. oil exporters. In a report by the Council of Economic Affairs, released yesterday by the White House, “higher oil prices would, on average, help the U.S. economy” once America “becomes an annual net exporter of petroleum”.

The moves today on the markets may begin weakly but end the trading day on a positive note, but for motorists, a fifth week in a row of rising pump prices isn’t going unnoticed. According to GasBuddy’s Live Ticking Average, the cost to fill up now stands at $2.586, up 2 cents since the weekend and 6.1 cents a gallon higher than last week. Indeed, gas prices have now risen 20.2 cents since last month and are a full 2 cents higher than on this same day last year with momentum likely to continue increasing that spread compared to this time in 2018. On the distillate side of the drum, diesel prices too are holding their lead over same day prices this same day in 2018, with an 8.8 cent premium. Traditionally, with the advent of spring, diesel prices fall with warmer weather, but given robust global demand and the transition by maritime vessels to low sulfur diesel by year’s end under IMO 2020 regulations, expectations for a decrease in diesel prices are likely to disappoint.

With an anticipated tightening of oil supplies in today’s EIA inventory report which appears to be at odds with a market unwilling to factor events leading to lower output from Venezuela to OPEC + Russian output cutbacks, crude producers may continue to hold back on all-out production given current prices may not be economically viable for either OPEC countries or shale producers. Consequently, energy traders’ apprehension may be giving way to less oil supply, causing potential shortage scenarios into the all-important summer driving demand period. Should the API’s numbers hold up and markets ignore fundamentals by holding fast to the risk like pricing by day’s end, the weeks ahead may be building to a significant price correction to the upside.

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 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.