Energy And Equity Markets Largest 2 Day Selloff Since COVID Panic

The wipeout continues for energy and equity markets with the biggest 2 day selloff since the COVID panic gripping markets around the world. Refined products are trading at 6 month lows this morning, while WTI traded below $61 overnight for the first time in 4 years.

The trade war escalated overnight after China announced retaliatory tariffs on all U.S. goods. No word yet if the penguins on Heard and Mcdonald islands are planning similar retaliation.

Adding to the negative sentiment from the trade wars, OPEC announced Thursday that it was accelerating its timeline for reducing its voluntary output cuts. Starting in May, 8 of the largest cartel producers will increase their output by 411mb/day, which is roughly three times the pace they’d announced previously. The announcement came after the latest round of tariffs but still noted healthy market fundamentals and a positive outlook, which suggests they had their screens turned off during the meeting.

RBOB futures have dropped more than 30 cents from Wednesday’s high trade, while ULSD futures had a 29 cent drop from peak to trough over the past 3 sessions taking off more than 12% from both contracts.

The next layer of chart support for ULSD comes in at $2.0431, which was the 3 year low set back in September, and we got within a penny of that level overnight before buyers stepped in. For RBOB, the September low for the current prompt contract (May) was $2.0133 which sets a solid near-term support layer, followed by the February low of $1.9297 on the continuous chart, which was a winter grade spec trading some 20 cents below summer grades at the time.

Speaking of winter/summer gasoline spreads, the news that imports of gasoline are exempt from tariffs for now didn’t change the trend for NYH RBOB basis, with the gap between summer and winter grades hitting a fresh 4 year low yesterday at just 11 cents per gallon, compared to a 35 cent/gallon spread this time last year.

RINs continued to move higher Thursday as it appears most biofuels and their feedstocks will not be exempt from tariffs as refined products and crude oil are. While the rally in RINs has helped offset the big drop in incentives from the BTC to CFPC (which is also known by its IRS tax code 45Z) this year, the increased costs for feedstocks and low LCFS/CCA values in California still mean most facilities can’t operate profitably which is likely to keep many of them shuttered for the time being.

The BLS estimated 222,000 jobs were added in the U.S. in March, while the January and February estimates were revied lower by 48,000. The headline unemployment rate ticked up a tenth to 4.2%, while the less manipulated U-6 rate ticked down a tenth to 7.9%.

Markets are already starting to wager that the FED may be forced to step in and try to help limit the economic damage caused by the trade wars, with the odds of a May rate cut jumping to 43% from just 22% prior to the announcement according to the CME’s fed-watch tool.

Nothing to see here: Delek reported another upset at its Big Spring TX refinery, only to take it back later in the day saying, “no activity occurred for this event…”.