Weak Data From China Is Getting Blamed For The Soft Start In Both Energy And Equity Markets This Morning

Diesel prices are moving lower for a 4th straight day and are down 19 cents from Thursday’s high trade after chart support failed to hold on Monday. Gasoline and crude oil prices were following diesel’s lead lower this morning, with RBOB futures down nearly a dime since Friday before bouncing back to break-even levels around 7:30 central.

Weak data from China is getting blamed for the soft start in both energy and equity markets this morning. While sales, production and investment all moved higher on the year, the numbers were well below what many forecasters were expecting, and more troubling was their Bureau of Statistics stopped reporting unemployment figures for youth, which had recently soared to record highs. The weaker economic activity isn’t slowing down Chinese refineries however as the new capacity brought online in the past 2 years helped hold output near record levels in July and continue heavy export activity despite seasonally strong domestic demand.

The bounce in gasoline prices off of overnight lows followed US retail sales data for July that showed the strongest gain since January, even though that report seems to have done little to move equities off of their lows for the day. The correlation between daily moves in energy and equity markets had largely fallen apart over the past couple of weeks, which seems to be helping RBOB shrug off the drop in stocks so far.

The volatility index for WTI has dropped to its lowest level since 2019 as global markets seem to be finding some sense of temporary equilibrium after the chaos of the COVID years and shock of the Russian invasion changing the direction of the global energy trade. 

What a difference a week makes: Group 3 Unleaded basis values have dropped nearly 30 cents over the past week as concerns about a supply squeeze ahead of the fall RVP transition seem to be subsiding. Neighboring Chicago RBOB prices followed the Group’s strong rally over the past month, and now look like they could be set to collapse in sympathy as well.  West Coast basis levels remain elevated heading into the transition, with last year’s September spike north of $2/gallon premiums still fresh on many minds.

Add another competitor to the renewable feedstock wars: A recent test showed Hydrotreated Vegetable Oil (which is what the rest of the world calls Renewable Diesel) lowered emissions 83% when replacing traditional bunker fuels on ships. That should come as no surprise to anyone who has been watching the rapid growth in RD production the past few years, and the question for producers is simply which market will provide the most incentive (aka environmental credits) for their RD, SAF or marine HVO.

The NHC is still tracking 2 potential storm systems this morning. The good news is the first system that could form in the Caribbean, is only given 10% odds of developing, and the 2nd storm that has slightly higher odds (30%) looks like it’s moving far enough north that it should stay over open water if it does develop further.

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