Sideways Action For Energy Markets Continues
The sideways action for energy markets continues, with oil prices trying to lead a modest rally this morning that would finish a choppy week of trading with gains that pale in comparison to last week’s heavy selling. The small trading range and back and forth action suggest a wait and see attitude as the Iranian tensions continue to simmer and as traders continue to debate how much the FED will cut interest rates next week.
It’s been a few days since we’ve had any market moving headlines from the Strait of Hormuz, as both Britain and Iran continue to hold a tanker hostage, while naval escorts seem to be preventing any further disruption for the time being. The economic sanctions on Iran continue to take a toll however, as two Iranian ships sit stranded off the coast of Brazil as that country refuses to refuel them.
While the action in futures has been lackluster, it’s been a busy week for companies reporting quarterly earnings. Oil refiners have been a bit of a mixed bag, although common themes include lower crack spreads than a year ago as discounts for North American crude – particularly Western Canadian crude – have shrunk. Oil producers meanwhile continue to struggle to create positive cash flows even as US production reaches all-time highs. Reuters notes that oilfield service companies are painting a grim picture for the back half of 2019, with most predicting more cut backs in operations and more rigs taken offline.
The slowdown in drilling activity is visible in in West Texas diesel prices as rack offers have dipped below Gulf Coast spot replacement costs this week – a phenomenon that’s happened only twice in the past two years.