Energy markets snapped their twelve-day epic skid yesterday with WTI crude managing a symbolic 56 cent a barrel gain to $56.25 a barrel while its European counterpart, Dated Brent, pulled off a 65 cent win to end at $66.12. Refined products managed 2 and 3 cent builds for gasoline and diesel respectively as traders considered the previous day’s historical 7.8% drop in crude values, which some attributed to momentum trading exaggerated by automatic algorithmic moves.
The fundamentals underpinning the near historical drop in hydrocarbons appear to be facing a growing awareness that despite Russia’s reluctance to continue with production cuts and the U.S. proceeding with record bound oil output, OPEC is likely to cut production by at least 1.4 million barrels following its meeting on December 9. Despite calls by the U.S. President to avoid such an action, the massive drop in crude prices, caused in large measure by the unexpected move by the U.S. to issue wide-ranging waivers to the world’s top importing nations, may have forced OPEC’s hand. Weighing as well on markets this morning, is the possibility of a likely substantial build in U.S. oil and fuel stockpiles, to be revealed in today’s weekly EIA inventory report, which could serve to temper a second day of gains on the futures markets.
With a week to go before Thanksgiving, drivers are beginning to benefit from a month of heavy losses in energy values. According to GasBuddy’s Live Ticking Average, current median pump prices stand at $2.671 a gallon, down 5 cents from last week, 21.3 cents compared to last month, but still 10 cents higher than on this day last year. Diesel too has given ground of late. Although still 40 cents higher than last year, at $3.238 a gallon, it is nevertheless 2.4 cents lower than last week and 6.2 cents below last month’s price.
The outcome of today’s trading appears opaque and decidedly ambiguous as market watchers consider a scenario where plummeting prices may have been somewhat overdone with some like the International Energy Agency raising concerns that the oil market is likely to be tighter than recent conventional wisdom, especially in 2019. Despite the API’s call for an 8.79 million barrel build in U.S. oil stocks along with a 3.9 million barrel build in gasoline and little change for diesel/distillates, a colder winter and dramatic collapse in price for petroleum products may have some choosing to throttle back on output. This could potentially lead to a reversal in the current trend of the markets and give way to a turnaround in prices by the end of the month. Nevertheless, the day ahead looks to be in neutral territory with winners and losers on the day leaving the trading session with no clear direction.