Energy Prices Mixed As Markets Await Fed Announcement And Ongoing Banking Saga

After a volatile start to the week, energy prices are mixed in the early going Tuesday as markets around the world await the next move from the FED tomorrow, and wonder if another shoe is about to drop in the latest banking saga. Monday’s big bounce for refined products and crude oil could mark the end of the harsh fear-driven sell-off, but at this point, it seems like many traders are going to wait and see what happens tomorrow before making bigger bets on a recovery rally.

The market seems to have talked itself into the fact that the FED will raise rates again tomorrow, but only by 25 points, as they try to balance the war on inflation with the need to soothe fears of a banking crisis. Yesterday the CME’s Fed-watch tool showed a 74% chance of a 25-point increase, and today that’s jumped up to 89%. A month ago, 24% of bets were on a 50-point increase, but that’s dropped to zero thanks to the run on banks over the past 2 weeks.

California gasoline basis values had dropped 70 cents/gallon so far in March, but LA values saw a 10-cent bounce on Monday, coinciding with reports of another upset at Chevron’s El Segundo facility. Racks across the South West stretching from El Paso to Phoenix meanwhile have seen huge premiums for prompt in tank barrels, or space on the lines to supply them, as multiple refineries are struggling to resume rates after maintenance, and the boutique grades of gasoline required in those markets makes resupply much more challenging.

French refinery strikes continue to escalate with police firing teargas at protesters near an Exxon refinery, which doesn’t seem particularly safe, and the government reporting it had begun tapping strategic fuel reserves to try and keep retail stations supplied during the disruptions.

Last week the EIA highlighted the record-setting amount of oil exports from the US in 2022 and noted the changing flows due to Russian sanctions. This week, a WSJ note shows how the resumption of Chinese demand is causing tanker rates to spike, and may be hinting at a reason for prices to rally again once the banking fears subside.

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