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Energy View: Tuesday, February 19

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A banner week followed by a holiday which saw markets closed yesterday, now has energy markets pushing oil to levels not tested since Monday, November 19 with WTI up 44 cents a barrel this morning to over $56, while Dated Brent is taking something of a breather, down 15 cents to $66.35 a barrel. Following the crudes on a more cautious footing are refined products, which in the case of gasoline, gained over 5% in value last week, while distillates picked up a 4% gain in value.

Much like last week, this morning’s early moves are predicated on optimism that ongoing trade talks are likely to prove fruitful and bolstered in no small part by President Trump’s willingness to delay further tariffs another two months provided the talks are meaningful. On the other side of the fundamental’s equation is evidence of a global tightening in all variety of oils, most notably heavier slates. While the U.S. continues to increase output of light tight oil, the grade does not satisfy a large constituency of U.S. and global refineries which are configured to use heavier slates. Saudi Arabia’s decision to cut back not only on its overall output to meet agreed to targets, but also more exports of heavier grades to the U.S. comes at a time when similar Venezuelan oil exports are in a freefall and Canada has already undertaken curtailments of over 300k barrels of heavy oil to the U.S. daily.

Showing up on the refinery side of the equation is a noticeable drawdown in Northeastern U.S. refinery turnarounds which have been compounded by ongoing troubles at several key refineries, including PBF, PES and Phillips 66 which could spell trouble for march and even April deliveries of both gasoline and diesel.

For now, drivers can continue to see ever-increasing upwards pressure on prices at the pumps. According to GasBuddy’s Live Ticking Average, the cost to fill up now stands at $2.336 a gallon, up 5.1 cents from last week and 8.3 cents higher than last month. And while the cost is still 18 cents cheaper than on this same day last year, the gap continues to narrow. For diesel, at $2.928 a gallon, the price has increased a cent from last week, on par with last month, but still 3.2 cents cheaper than on February 19, 2018.

The day ahead is likely to prove supportive of last week’s overall gains as commodities traders await Thursday’s EIA weekly data on inventories. Given the timing change to April contracts for the petroleum complex on Wednesday, markets will begin to consider spring time valuations, taking into account supply issues for refined products and the level of success and commitment OPEC+ will achieve on its goal of reducing a global glut in oil.

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