China Considering Lifting Quarantine Protocols Has Awakened Oil Bulls This Morning

China considering lifting quarantine protocols has awakened oil bulls this morning: American and European oil benchmarks are showing +$1 gains to start the day. The prompt month RBOB contract is following suit, tacking on 4 cents, while November ULSD contract, on the other hand, is continuing to show signs that the bubble has popped and is extending yesterday’s losses by 3 cents so far in early morning trading.

President Biden’s announcement that the US will seek to sell the last portion of the original 180 million barrel SPR sale was met with mixed reactions yesterday. Some view it as the president’s latest attempt to curb high energy prices and inflation while others are labelling the announcement as yet another round of political machinations aimed at boosting his approval rating ahead of the looming mid-term elections. More importantly, perhaps, was Biden’s claim that the White House will look to replenish the Strategic Oil Preserve around $70, effectively putting in a floor for WTI prices at that level.  

The Department of Energy reported a 1.7 million barrel drop in national crude oil inventories yesterday, coming close to the American Petroleum Institute’s estimate of a 1.3 million barrel drop published Tuesday. Gasoline and diesel inventories had a more tame move, both dropping and gaining around 100,000 barrels, respectively. Diesel statistics saw an increase in imports and outputs, and a drop in exports and demand, leading to a 7% increase in days of forward cover. While these figures are far from boasting a recovery in national distillate supply, they surely aren’t hurting the downward price trend that has shaved 30 cents off the November HO contract in the last three days.

Well, that didn’t take long: UK Prime Minister Liz Truss has resigned, becoming the shortest-tenured PM since the position was created. While the announcement centers around her failure to stabilize market conditions by cutting taxes and increase government spending, it is unclear how/if this will affect the nation’s latest stance on alleviating high electricity and natural gas prices this winter.

The Energy Information administration told us what we already know in a note published this morning: homes using heating oil to stay warm are going to pay more this winter. 27% was the pegged increase in expenditure on heating (which doesn’t account for inflation but will definitely drive it) due to higher energy prices and a colder-than-average winter. The diesel inventory charts below, showing that US stockpiles have been below the 5-year range all year can shed some light on why prices are elevated.

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