Energy Markets Treading Water After The FOMC's Disappointing Announcement

Energy markets are treading water to start Thursday’s session, after a big sell-off in equities knocked the wind out of an attempted rally Wednesday afternoon.

The FOMC announced a 25 point rate cut as expected yesterday, but also signaled that stubbornly high inflation may mean only 2 rate cuts next year vs the 4 predicted just a few months ago. Stock markets hate paying money to borrow money and reacted in negative fashion to that news, and even though equity and energy markets haven’t correlated much at all this year, there was no mistaking the sympathetic selling that hit oil and refined products later in the afternoon.

Prior to the FED’s announcement, prices had been rallying on the back of some favorable fundamental data reported by the DOE, most notably a drop in diesel inventories driven by a 30% surge in the weekly demand estimate. That demand figure will almost certainly be the peak for the season as demand will plummet over the next few weeks.

LA gasoline basis values jumped a nickel Wednesday after Chevron reported unplanned flaring at its El Segundo refinery late Tuesday night. Subsequent reports from Energy News Today suggest the refinery was forced to shut multiple units during that event.

The EIA this morning published a note highlighting how India is expected to take the torch for global oil demand growth from China over the coming year. That report echoes the sentiments of China’s own oil and gas industry, as Sinopec said the country’s gasoline demand peaked last year and the declines would pick up pace from here.

In addition to India’s demand growth, the country is also in a leading position to exploit the Russian sanctions refining loophole, selling gasoline and diesel to Europe made from discounted Russian crude, which also helps explain why the country is set to outpace the rest of the world in refinery capacity additions over the next 5 years.