House to Vote on a Senate-passed Bill that Could Impact the Commodity Market

Oil prices are down this morning, following a slightly bearish API report yesterday. Crude traded mostly flat during yesterday’s trade, closing the day a mere 16 cents higher. This morning, oil prices are moving lower, losing 34 cents to trade at $70.97 currently.

Fuel prices are also showing loses this morning, tracking crude lower. Both products ending yesterday’s trading session with minor losses. Diesel prices are down 1.5 cents this morning, trading at $2.2340. Gasoline prices are down to $2.1992, a half a cent loss since Tuesday’s close.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law in response to the U.S. financial crisis that occurred in 2007-2008. Under this Act, banks are required to keep certain levels of reserves if they participate in derivatives trades – which is how commodities are hedged (ie. swaps, options and NYMEX Futures). Next week, the House is expected to vote on a Senate-passed bill that will loosen some of the reserve requirements, which in theory would allow more small banks who cannot afford the current levels of reserves to enter the derivatives trading market. If the bill is passed, smaller banks may be able to join the derivatives market and increasing liquidity for hedgers, but the overall impact on the market remains unclear.

Markets are also monitoring the Brent-WTI Spread this week. Brent hit a $7.29 premium over WTI crude oil yesterday, supported by declining Venezuelan production and the threat of decreased Iranian oil exports. Just two weeks ago the spread was $5.50, and remained in the $2.50-$3.00 range through the first half of 2017. The increased premium will encourage strong US exports as refiners attempt to capitalize on the increased margin.

The API released their weekly inventory data yesterday, which showed a large build in crude oil and draws in the products. While markets were expecting a small draw in crude inventories, the API’s data showed a 4.9 million barrel build, putting a damper on yesterday’s prices. The market is anticipating the EIA report later this morning to confirm these estimates.