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Energy View: Thursday October 18

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Energy markets took a decidedly negative turn for the worse yesterday as U.S. crude stockpiles grew by a stunning 6.5 million barrels the previous week, which was ahead of consensus and certainly not the 2 million barrel draw forecast by the API. News that Saudi Arabia and Kuwait had managed a sudden agreement over a shared border oilfield, thought to provide sufficient spare barrels to offset any anticipated loss of supply with Iranian oil being effectively shut in by November 4, seemed to provide more pressure on Dated Brent, which fell almost $1.50 a barrel to $79.94, while WTI took a $2.17 haircut to end the day at $69.75. Other factors such as the release of a million barrels from the U.S. Strategic Petroleum Reserve (SPR), a drop of 300k barrels in domestic oil production and continuing refinery maintenance were also considered.

This morning, traders are following yesterday’s downward trek with further losses being recorded in early trades, led by Brent which down over $1.20 a barrel and WTI off nearly $1. Should the pessimism prevail on the day gasoline and diesel’s near 3 cent a gallon loss, so far, could double, replicating the 6 cent a gallon collapse in gasoline values yesterday which also saw diesel take a near 3 cent hit.

Although the recent declines in refined product prices have not been entirely reflected at the pumps as of yet, the drop of a few cents in the past week is a signal that the correction on the energy markets will soon provide drivers some relief. According to GasBuddy’s Live Ticking Average, pump prices now stand at $2.87 a gallon, down 3.9 cents from last week while still ahead of last month’s price by 2.6 cents. In comparison to last year at this time, a fill up is now a little over 42 cents a gallon more expensive and assuming a driver using 40 gallons a month, an extra $16 to $17 more a month. For diesel, at nearly $3.30 a gallon, a similar fill up will set you back an additional $23 a month as the distillate now stands at 57 cents a gallon higher than on this date in 2017.

For the day ahead, expectations will be for a continuation of the sell-off, albeit more modestly than yesterday as tightening global supply realities will necessitate a more careful scrutiny of the fundamentals as the November 4, U.S. sanctions come into full effect on critical Iranian oil output and global demand for petroleum products remain robust, profit taking and short-term headlines notwithstanding.

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.