Tentative Agreements Give Reason To Cheer

Deal making is the theme of the week as tentative agreements in 2 different wars (US vs China, and congress vs itself) have given equity and energy markets reason to cheer. Unfortunately, the details on both deals are scarce, which threatens a Grinch moment next week that could knock US stock indices back from their all-time highs, and send energy prices back into the winter doldrums.

Another presidential twitter bomb sent both asset classes sharply higher Thursday morning, but has often been the case with these social media market moments, the enthusiasm began to fade when details of the deal were hard to come by. There is still optimism in the market’s overnight trading, but China has been conspicuously quiet on the “deal” which could end the buying spree in a hurry.

The details of the congressional spending deal have also not yet been released, and probably aren’t set yet. Based on the drop in D4 RIN values Thursday, the market seems to be expecting a return of the $1/gallon biodiesel blenders tax credit, which could save the industry that has been crumbling without it.. There’s a good chance that spending bill, if passed, will also reinstate the federal oil spill fee.

Charts are not looking favorable for refiners these days as both WTI and Brent are breaking out to fresh 3 month highs, while refined products continue to languish in their trading ranges. Weakness in refinery margins is nothing new this time of year (see the crack spread chart below) but the recent drop in spreads is no doubt a disappointment for operators banking on Tier 3 and IMO spec changes to boost profits in the coming year.

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