It was inevitable that the Jackson Hole Symposium, and the all-important speech from the Chairman of the US Federal Reserve, has caused somewhat of a trench warfare attitude from markets and investors are watching the battlefield play out through periscopes. Even the NVIDIA inspired tech-stock rally yesterday has today lost nigh on all of its panache and markets revert to being defensive. The NASDAQ 100, which is more tech-sensitive than any other bourse, has given back all of the previous day’s gains and then some. This snapshot plays out in mirror formation across the globe, as far as equities are concerned, and the morning tone appears set at sullen for investor tourists.

Aiding and abetting, or even causing this backward step in morale is the strengthening US dollar. Talking heads populate the various modes of media convincing everyone that Powell’s speech will indeed be one that confirms an interest rate environment lasting ‘higher for longer’ and the main reactionary investor flight tools move in kind. The greenback rallies against all of its G-10 peers which is borne out by how the US Dollar Index (DXY) has travelled from 103.30 yesterday morning to currently 104.24, which is the highest for 3 months. The yield on 10-year US Treasuries has risen by 1-basis point to 4.25% representing in itself a type of ‘tightening’ because of the effect on debt. 

So, where does this leave oil? Largely ignored if the overnight moves are representative. The pressure the oil complex felt was relieved by the publishing of European inventory figures yesterday evening allowing those that attack the market from a technical point of view basking in the glory of how Heating Oil and its wingman Gasoil have battled their way above important key indicators and now eye their recent highs. Our market started the week wondering whether the strength in distillate derivatives was enough to stave off macro-economic considerations and be able to hold the oil complex in whole. It appears that at the end of the week, little has changed.

GMT +1	Country	Today’s Data	Expectation
09.00	DE	IFO Business Climate (Aug)	86.7
15.05	US	Jerome Powell speech at Jackson Hole Symposium
18.00	US	Baker Hughes Oil Rig Count (previous 520)

 

Distillate versus Crude keeps oil traders on their toes

In this shining bright environment of August ambivalence, position and risk takers can be forgiven for thinking on downing tools. This is not exclusively explained by the seasonal performance of distillate and crude in the face of turnarounds, there are far wider economic considerations which will be omitted as they have been journaled well enough. However, there is a question that accompanies the heave and haw in crack values, and it is whether the market has under-estimated the pull on Heating Oil type fuels and the amount of crude that might be side lined?  

The Amsterdam-Rotterdam-Antwerp region experiences another depletion in refined fuel storage according to Insights Global as referenced on Bloomberg. Independent inventories drew down as follows; Gasoline by 114,000 tonnes, Gasoil by 63,000 tonnes, Fuel Oil by 14,000 tonnes, Jet Fuel by 14,000 tonnes and lastly Naphtha by 21,000 tonnes. The concept of underachieving refiners in Europe is thus kept alive. Although in the US refinery utilization dropped off by 0.2% as reported in the EIA report, it is still at almost 95% and even with China refiners ‘running hot’ low global distillate stocks remain an issue.

With China in mind, the idea of disparity in feedstock versus finished fuel movement is magnified with recent news that it is drawing on inventory rather than bring its buying to market. Iran is now reportedly producing crude in excess of 3-million barrels per day and with there being only a matter of time and financial tuning before Turkey and Iraq achieve an agreement as to the resumption of flows through Ceyhan, adding up to 450,000 barrels per day, the idea of crude deficits is definitely being questioned. However, the news that US President Biden’s administration have decided to open talks with Venezuela to temporarily suspend oil sanctions brings on streams of thought that will trouble bulls. There is little doubt that Washington’s offer will come with some sort of reference to national ‘open elections’ caveat but having granted some oil rights to Chevron already, a precedent, as paltry as it may be, has been set. It is well established that the global crude problem is a sour one, all the crude that might come from the Orinoco belt is just that, heavy, sour. Of course, production infrastructure is in tatters, it will take years for any sizeable production to come online, but Venezuela has the largest oil reserves in the world, so would it be mischievous to speculate that the US is in some way using Venezuela to run defence against the Saudi tightening campaign? Unkind ‘Sleepy Joe’ insults forget what a great hand President Biden played with the US SPR. Threat after threat of release was enough to dampen bullish fervour and when the government stockpile spigot was finally thrown open, it has helped keep crude prices away from $100/barrel for the last year. This divisional product/crude posture is an antidote to risk. 

The ephemeral nature of energy drivers at present is enough to keep the most battle-hardened trader hunkered down. At the beginning of the week our market attitude was historically tugged at by what happened in Europe last year as alternatives for Russian gas were sought. The Australian threat of strikes by Woodside LNG workers along with their Chevron comrades sent Dutch TTF prices from Eur36 MW/h at COB on Friday to Eur45 MW/h Wednesday afternoon. Overnight (Wednesday into Thursday), and with only ratification needed from members, a deal was reached by workers and Woodside management and the TTF price tumbled to Eur31 MW/h.

It would be a brave soul to predict what will emit from Jerome Powell’s mouth at Jackson Hole today. The world awaits with bated breath. All markets are soddened with so much news as to be quite indigestible causing frantic and fractious spikes higher and lower. These sorts of moves are starting to feel commonplace at present and make for a market that is, and forgive the cricket parlance, unplayable.

Overnight Pricing