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Energy View: Tuesday October 16

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Crude showed resilience yesterday in the face of escalating tensions with Saudi Arabia over the disappearance of Washington Post’s Jamal Khashoggi after the oil kingdom threatened for the first time since 1973 to use oil supplies as a retaliatory threat, should the U.S. and other nation move to punish it for its complicity. The result saw Dated Brent pick up a symbolic 25 cent a barrel gain to $80.68 while WTI rose 44 cents to $71.78. The timing of such an exchange comes on the eve of the official blockade of Iranian exports, including oil, which could lead to the real prospect of shortages in November.

Short of a defusing of the tensions, an unlikely standoff between the U.S. and Saudi Arabia would lead to a severely undersupplied global oil market in which case all petroleum prices would move up to levels which might trigger demand implications and cause economic dislocation.

For gasoline and diesel, these geopolitical tensions seemed not to have been fazed by the rumors and market conjecture with both registering small gains – less than half a penny on the day with today’s trades – showing the same degree of ambivalence as yesterday, maintaining Monday’s closing values.

After a couple of weeks of gently rising gas prices, American drivers are seeing little movement at the pumps for the beginning of this week, according to GasBuddy’s Live Ticking Average. At $2.88 per gallon pump prices are down 3 cents compared to last week, but up 4.7 cents versus last month and still nearly 43 cents a gallon above what most paid this time last year. For its part, diesel continues to build on its premium over the same day last year and at $3.30 a gallon, now sits 58 cents above prices on October 16, 2017.

The day ahead holds more uncertainty in terms of overall price discovery on energy commodities markets as more concern is baked into President Trump’s threat of “severe punishment” if the Saudi’s are found to be complicit in Khashoggi’s death in Turkey. Traders will also have to weigh the effects of other trade entanglements, including that with U.S. – China and Brexit outcomes. Other matters to be pondered include the assessing global oil spare capacity, in advance of sanctions on Iran, especially with news that South Korea, a large purchaser of Iranian oil, has officially ended its contracts with Iran. The search for alternative suppliers may prove to be few and far between. The slight losses on the day ahead may be reversed by a more bullish API report this afternoon and more focus on the tightening of global crude supplies beginning officially in two weeks this upcoming weekend.

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.