Crude prices and refined products have fallen early this morning as the U.S. dollar index strengthened in reaction to an increase in interest rates. Last week, Fed Chairman Janet Yellen spoke in Jackson Hole, Wyoming about good U.S. employment numbers and price stability, making it seem as if a rate hike could happen earlier than expected, possibly in late September. This bolstered the U.S. dollar index throughout the weekend and therefore negatively impacted crude and refined products. WTI is currently trading down $0.70 to $46.94 and both RBOB and ULSD are down $0.0333 and $0.0165, respectively.
The up and down, bullish and bearish sentiments have once again stumped investors. Mid-July we saw a very bearish market as supply glut concerns rang through the ears of investors. Three-weeks later the bulls were back on high alert as OPEC members began rumors of a proposed meeting in late September to discuss a production freeze in order to stabilize prices. Meanwhile, the excitement has been dwindling. "The short-covering rally has come to an end," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. "There are two reasons for this: the likelihood of an agreement to freeze output is becoming less-and-less likely all the time and the dollar’s relative strength." – Bloomberg.com
Tropical Depression Nine, as designated yesterday, is forecasted to make landfall around Thursday in Florida’s Gulf Coast. Some oil rigs in the region are beginning light evacuation of personnel in anticipation of heavy rains and possible flooding. Gulf Coast cash market prices may strengthen if this storm makes landfall with heavy rains and strong winds. The picture below is from weather.com and is their most up-to-date path prediction.
After eight consecutive weeks of an increase in rig count, Baker Hughes report showed no change last Friday. Rig count remained at 406, which is still significantly higher than Q1 and Q2 this year.
True fundamentals, as always, are pulling the strings of the market now. Supply vs. demand, dollar strength, interest rates, pipeline and refinery utilization and maintenance schedules, and natural disasters, are what require our attention. When the dust settles, resort to fundamentals.