Forty-six years to the day after Willie Mays hit his 600th home run, and the crude complex is striking out after yesterday’s winning performance; crude prices are crumbling as the windshield wiper of risk appetite swooshes from risk-on to risk-off.
Broader markets are being dealt a solid hand of the WBWs (whoop-bang-wallops, lest we forget) as fears rise up once more of global economic weakness led by emerging markets. Today’s sell-off is sponsored by news overnight from the Asian Development Bank, who has lowered its economic growth forecasts for Asia’s developing economies, driven by slowing growth in both China and India.
For a second consecutive day, there isn’t a lot for us to get our teeth into in terms of economic databytes; it isn’t until later that things pick up when we get the weekly API report, before a preliminary manufacturing number out of China tonight. Related: Russian Oil Industry Braces For Tax Hike
Checking in with retail gasoline prices, we can see that we are below $2.30/gal on the national average, with another few months of seasonal descent to come. Even Hawaii, traditionally the most expensive state, is below $3/gal. Los Angeles is still in three-dollardom, but prices are racing downhill after spiking earlier in the year due to refinery problems.
As the WTI October contract rolls off the board today, we are seeing further whipsawing as the market is characterized by Jekyll and Hyde mood swings each day. Even though the latest CFTC data is indicating that short positions are being unwound, consensus in the market seems to be that we are still that we are going to move lower from here. Some point to the next catalyst being higher global stocks amid refinery maintenance season, while others point to spluttering demand. All the while, it seems to be ignored that higher-cost production is being put through the wringer. Related: Iran Deal May Redefine The Middle East
Finally, a reader forwarded this piece, and asked for our thoughts – ‘Singapore’s Record Stockpile Of Fuel Oil Placed In Tankers‘. Our view is that these record stockpiles have been caused by exceptionally strong refinery runs, encouraged by attractive refining margins. While we expect to see slower exports from China going forward, we will also likely see lower Chinese demand due to slower economic activity. The combination of low freight rates and contango in the market have made it financially viable to store fuel oil on tankers in the first place, and although freight rates have recently rebounded, we still see strong supply going forward as refiners from Asian to the Arab Gulf continue to put products onto the global market.
By Matt Smith
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