Oil Prices Slide Lower As Banking Crisis Continues, Refined Products Show Relative Strength

Oil prices are sliding lower to start Tuesday’s action with headlines blaming the banking crisis for the move even while banking stocks are rallying to start the day. Refined product prices have found relative strength compared to crude oil prices following a few bullish elements for both supply and demand globally. 

Strikes at French refineries are continuing for a 7th day, and several are now reaching a tipping point as storage tanks have reached capacity even while operating at minimal levels.  That means the striking workers will either need to allow some products to flow – as they’ve done in a few cases so far – or force the plants to shut down their operating units. Note that the protestors have also shut in production at a Renewable Diesel (which is known as Hydrotreated Vegetable Oil, or HVO, in Europe) refinery, which suggests pension reform matters more than saving the planet.

Chinese diesel exports are reportedly dropping rapidly as increased domestic demand as the country reopens is keeping more barrels at home. 

The storm sweeping much of the East Coast, after the winter that wasn’t, seems to be contributing to the relative strength in ULSD so far this week, as we’re seeing calendar and prompt NYH basis spreads rally as there may be one last shot of heating demand before spring takes hold, and deliveries in and around the harbor may be delayed by high winds.

The February CPI report showed inflation continues to hang on, with prices rising .4% for the month and 6% for the year, both in line with several published estimates. The index without food and energy prices included was up .5% on the month as costs for housing increased more than other items. The drop in natural gas and diesel prices were key contributors to a drop in energy costs, which helped to limit the increases in food and other services. Both equity and energy prices dipped in the first minute after the report was released but quickly recovered as this report doesn’t seem to offer enough to change anything that the FED might do to either combat inflation or soothe the fears in the banking industry.

The CME’s Fedwatch tool shows how rapidly bets on treasury rates have changed this week, with nearly 100% odds that the FED would actually be forced to make a rate cut by the July meeting yesterday, after a 0% probability being priced in a week ago. Already this morning odds of a rate cut have been cut in half from yesterday’s levels, which combined with the recovery in bank stock prices so far today suggests that markets may already be calming down. Remember that the amount of money flowing through treasury and equity markets is many times larger than the funds flowing through energy futures, so it doesn’t take much to flow into or out of our market to have an outsized influence on prices. 

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