As organized 4th of July celebrations dissipate in the unbearable mid-summer heat, and Katy Perry’s “Firework” lyrics fade into the hot summer nights, “family trucksters” trekking across our great nation are certainly not celebrating gas prices at the pumps. Fireworks continue to light up the “trading skies” for the bulls as WTI for August delivery is trading near its 4 year high at $73.60 bbl, RBOB is up $0.0339 trading at $2.1424 gal, and HO is up $0.0233 at $2.1917 gal. Since the middle of June, and after OPEC’s decision to increase production to fill the oil production/export void that will be left by re-imposed sanctions against Iran, WTI has rallied nearly 17% or $10.69 bbl.
When the American popular music vocal group The 5th Dimension released the song, “Up, Up and Away” in 1967, domestic crude oil prices were at $3.12 a barrel, with an inflation adjusted price of $22.90 a barrel, and I’m quite positive they weren’t thinking about what impact $80 a barrel, or even $100 a barrel would have on the global economy. As of 12:30pm WTI crude for June delivery is up $0.18 at $71.67. With an intraday high of $72.30 for WTI and an intraday high of $80.50 for Brent crude, market participants are anxiously watching WTI’s major resistance level at $72.23 and Brent’s psychological level of $80 a barrel for a hint as to where prices may head next.
The headline “du jour” is clearly another “shot across the bow” from the Trump Administration upping the ante by ordering U.S. officials to identify extra tariffs on an additional $100 billion in Chinese goods. Beijing vowed to defend China’s national interest and considers this latest posturing a serious violation to the rules of international trade and is fully prepared to respond with a “fierce counter strike” of fresh trade measures against the U.S. if President Trump follows through on his latest threat. Crude prices and global equity markets fell on the potential impact the heated rhetoric may have on the world economy. As of 1pm EST, the Dow is down 350 pts, the S&P 500 is down 30pts, WTI for May delivery is down $1.18 at $62.36, HO is down $0.0168 at $1.9597, and RBOB is down $0.0289 at $1.9527. As the latest threat of trade wars adds volatility to markets across the board, the S&P 500 continues to show resiliency testing and bouncing off its 200day EMA (exponential moving average) currently at 2,603.76 on ten different trading occasions.
As the drones of the woodwind instrument that has been used for over a millennium fades into thin air from the most recent Feast of Saint Patrick, we await, arguably, the most anticipated FOMC meeting in recent years for indications on the Fed’s interest rate policy going forward. The Federal Reserve’s first meeting under Jerome Powell’s leadership is over the next couple of days and will hopefully provide in plain understandable terms, the Fed’s actions on whether there will be 3 or 4 interest rate hikes this year. If the Fed is leaning towards the 4 or maybe even 5 interest rate hikes, the higher borrowing costs which may trigger less spending by businesses and consumers, will most certainly keep global equity markets on edge. As financial markets turn cautious because of continuing concerns about the threat of a global trade war and inflation fears continue to be a hot topic, the energy sector may continue its grind in a tight range until fundamentals give it a nudge one direction or another. As of 1:00pm EST, WTI for April delivery is down $0.29 at $62.05, HO is unchanged at $1.9118 and RBOB is down $0.0100 at $1.9359.
The Dow Jones Industrial Average is down 396 at 24,569 and S&P 500 Index is down 46.5 at 2,709.5.
As market participants digest a neutral to slightly bullish Weekly Petroleum Status Report, they must also make a calculated risk assessment of whether the 43.52% rally from last mid-summer lows is just a pause in the 179 day bull run OR has the worm finally turned and trade war fears, higher oil inventories, strong shale output growth and steep monthly drop in crude imports by China have introduced a headwind that is insurmountable. U.S. Energy Information Administration showed U.S. crude inventories rising by 2.4 million barrels in the week to March 2nd, distillate inventories falling by 559k, and gasoline stocks falling by 788k. Rising U.S. output reached 10.37 million bpd last week, keeping our inventories slightly above the 5 year avg.