Fuels Market Watch 24

FUEL MARKETS TODAY – Market Overview

Crude oil prices have made an early-morning rally today, recovering from yesterday’s decline. WTI (West Texas Intermediate) crude prices in today’s trading session opened at $68.80/b, a slight decline of $0.13 from yesterday’s opening. Subsequently, this morning’s rally brought prices back by approximately one dollar per barrel. Gasoline and diesel futures prices were down significantly at today’s market opening, but they are following crude oil’s path upward, and product prices have surged back in early morning trading.

Oil prices are see-sawing, and they are likely to continue to do so. Price have been supported by supply tightness, which will be exacerbated when U.S. sanctions on Iran take effect on November 4th. To some extent, the market is already planning for this, with investors taking long positions in Brent crude. But there are mixed signals about longer-term oil prices. Earlier, Saudi Arabia had stated that it (and other producer countries) would raise output to compensate for shortfalls from Iran. Now, Saudi Arabia seems to be backing away from raising output, indicating that it is in no hurry to bring Brent crude prices down below $80/b.

Russia’s Energy Minister, Alexander Novak, stated that the current high prices of $70-$80/b were temporary, and that the longer-term price would be closer to $50/b. The OPEC and non-OPEC countries participating in the oil production cut agreement will be reviewing future production levels. But a barrel-for-barrel replacement of lost Iranian supplies seems unlikely if the group believes that raising output will cause prices to collapse to $50/b.

The White House announced a new 10% tax on roughly 5000 products from China, to come into effect next week. The tariffs will go up to 25% on January 1st, 2019. China answered that it would respond in kind, and that details will follow. The market response was subdued, with some investors noting that they had been prepared for worse.