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Energy View: Thursday October 4

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Commodities markets sprung to life late in the trading session yesterday, tempted by the imminent loss of Iranian oil ahead of U.S. sanctions on its export in exactly one month. Setting aside what many considered a bearish weekly EIA report which showed an 8 million barrel surge in domestic crude stocks, traders doubled down on their bullish sentiments, sending Dated Brent soaring $1.49 a barrel to $86.29, with WTI gaining $1.18 to settle at $76.41. Traders generally signaled doubts that even with a verbal commitment by Russia and Saudi Arabia to bolster output, it may be too little, too late, much less, unlikely. The upswing in crude carried over to refined products which saw more modest gains on the day, in keeping with the aggressive rise in crude as diesel rose over 3 cents a gallon and gasoline managed a gain of just a little less than a penny.

Markets may have also been prompted by the U.S. government’s swift termination of a 1955 agreement of amity between the U.S. and Iran after an international court ruled the imposition of an embargo defied the spirit and letter of the aged treaty. The agreement’s cancellation meant the path was now clear to effectively cut off Iranian oil exports.

Despite a strong ADP payroll report on employment with 230,000 additional jobs created, energy commodities appear to be backing off this morning with crude prices down about 50 cents a gallon and fuels paring about 1 cent a gallon in value compared to yesterday. Profit taking and residual concerns that higher petroleum prices may harm global economic activity are apparently at the root of the more cautious tone adopted by markets this morning.

Nevertheless, weeks of rising prices on the markets is giving way to higher pump prices for most drivers. According to GasBuddy’s Live Ticking Average, median national gas prices are now over $2.91 a gallon, up nearly 4 cents compared to last week and 7 cents higher than last month. Considering gas prices stood at $2.514 a gallon on this day last year, the cost of filling up now comes with a 40 cent a gallon premium. Turning to diesel, average prices are now up 4 cents from last month at $3.25 a gallon, which in contrast to this same day last year, stands 51 cents higher.

For the day ahead, futures markets are likely to pause their advance and consolidate the gains seen over the last two weeks. The veracity of OPEC’s claim that it will supply 1.3 million barrels to offset any loss with sanctions on Iran, will have to be proven in hard numbers, not just verbal assurances.

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.