MARKET SNAPSHOT

By Dr. Nancy Yamaguchi

Oil prices strengthened midweek on bullish inventory data, but they plunged Thursday on the threat of additional U.S. tariffs on Chinese goods. Tuesday and Wednesday, news of inventory drawdowns and a supply disruption stimulated buying. On Wednesday, the Fed announced a rate cut of 25 basis points, the first cut since the Great Recession. President Trump immediately criticized the Fed chair. There were concerns that one rate cut might not be sufficient. WTI crude prices dipped to lows beneath $54/b. Today, however, prices are recovering, passing the $55/b level and reaching for $56/b. This suggests that Thursday’s sell-off may have gone too far. Our weekly price review covers hourly forward prices from 9AM EST Friday July 26th through Friday August 2nd. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.

GASOLINE PRICES

Gasoline opened on the NYMEX at $1.8803/gallon on Friday July 26th, and they opened at $1.755/gallon on Friday, August 2nd. This was a sharp drop of 12.53 cents (6.7%) following last week’s moderate recovery of 3.17 cents (1.7%.) This week brought a drawdown in inventories, which bumped prices up midweek. By the end of the week, however, concerns of economic weakness and oil oversupply resurfaced. Gasoline prices are recovering this morning, with trades occurring mainly in the range of $1.76-$1.80/gallon. The latest price is $1.795/gallon.

 

DIESEL PRICES

Diesel opened on the NYMEX at $1.907/gallon on Friday July 26th and opened on Friday August 2nd at $1.8709/gallon, a weekly decline of 3.61 cents (1.9%,) following the prior week’s modest recovery of 2.13 cents (1.1%.) Diesel prices are recovering this morning, with contracts currently trading in the $1.88-$1.92/gallon range. The latest price is $1.9089/gallon.

WEST TEXAS INTERMEDIATE PRICES

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday July 26th at $55.93/barrel and opened at $54.54/barrel on Friday August 2nd, a decrease of $1.39/b (2.5%.) Prices climbed midweek, motivated by reduced supplies and drawdowns from inventory. The Fed rate cut strengthened the U.S. Dollar by Wednesday, exerting pressure on oil prices. The threat of additional U.S. tariffs on Chinese goods pulled stock markets down by Thursday and Friday. WTI prices dipped below $54/b on Thursday. This morning, crude prices are recovering, and they have climbed above $55.50/b. WTI is trading mainly in the range of $55.00/b-$55.85/b. The latest price is $55.69/b.

PRICE MOVERS THIS WEEK : BRIEFING

Oil prices strengthened midweek, as bullish supply numbers stimulated buying, then fell as caution rose concerning the economic outlook. On Wednesday, the Fed announced a rate cut of 25 basis points, the first cut since the Great Recession. Markets already appeared to have factored in the cut, and hints from the Fed that it would be the only cut this year caused a cooling. The U.S. Dollar strengthened against other currencies, exerting pressure on oil prices. By Friday, Asian stock markets were tumbling in response to U.S. President Donald Trump’s announcement of a 10% tariff on an additional $300 billion of Chinese goods, scheduled to take effect on September 1st. In part, the Fed’s rate cut was to combat economic slowing caused by the trade war. Immediately on the heels of the cut, President Trump criticized the Fed Chair, and expanded the trade war. This has led to speculation as to whether the Fed will continue with accommodative monetary policy.

Today, oil prices are recovering from the mid-week slump, perhaps signaling that the sell-off was overdone, and investors are re-entering the market.

The U.S. Energy Information Administration (EIA) reported that U.S. crude oil production recovered to 12.2 million barrels per day (mmbpd) during the week ended July 26th, as production was fully restored after Tropical Storm Barry the prior week. The weekly record-high was 12.4 mmbpd reported for the week ended May 31st.

On Tuesday, the American Petroleum Institute (API) reported a significant drawdown of 6.0 million barrels (mmbbls) from crude oil inventories, plus draws of 3.1 mmbbls from gasoline inventories and 0.9 mmbbls from diesel inventories. Prices strengthened when official statistics echoed the across-the-board draws. EIA reported a crude stock drawdown of 8.496 mmbbls, plus drawdowns of 1.791 mmbbls from gasoline inventories and 0.894 mmbbls from diesel inventories. The net stock drawdown was 11.181 mmbbls.

OPEC production fell as Libya declared force majeure again on crude loadings from its Sharara field, which has a capacity of around 300,000 bpd. Saboteurs reportedly shut a valve in the pipeline leading to the export terminal for the second time this month.

The Bureau of Labor Statistics just released the July 2019 Employment Situation Report. The Jobs report showed total nonfarm payroll employment rising by 164,000 in July, with unemployment remaining unchanged at 3.7%. This fell only slightly short of market expectations, which had forecast job growth of 165,000, and also expected the unemployment rate to fall to 3.6%.