Economy under Focus, Central Bank Activity Spurs Bearishness

The oil complex is moving lower this morning retracting some of yesterday’s gains. Crude rose over a dollar yesterday pushing just over the $70 mark to close the day. This morning, crude is trading back below $70, down 92 cents at $69.21.

Fuel prices are also making their way to lower ground following crudes downward momentum. Products saw mixed results yesterday with diesel trading up 2 cents and gasoline losing half a cent. Gasoline and diesel are moving in the same direction this morning, trading down just over 2 cents at $2.1386 and $2.1500 respectively.

Oil prices are easing this morning as President Trump has been softening his rhetoric towards Iran, noting yesterday that he’s willing to meet with Iranian President Rouhani. After exchanging heated tweets, this change in sentiment signals hope for bringing Iran’s oil production back to the market. Sanctions are expected to remove as much as 1 million barrels per day from the global market; a new deal waiving sanctions would allow this oil to be sold globally, causing prices to drop quickly lower.

Economic Update

On the economic front, economists are growing worried about the reversal of quantitative easing, the economic response to the Great Recession. Back in 2009, central banks undertook a new approach to combatting recessions – QE, which involves buying trillions of dollars of bonds and securities. All those purchases flood the economy with cash, sort of like injecting a steroid into the economy to get it working again. Now central banks are reversing course, pulling money out of the economy to slow it down.

Quantitative easing was a brand new policy when implemented – and it worked (depending on who you talk to), preventing the economy from falling too far into default. But now markets are facing an equally uncertain future as central banks reverse course. Money has never been withdrawn from an economy at this scale, and it could impact everything from interest rates to financial markets.

What does that mean for oil? Like all financial markets, oil will likely be impacted by the volatility. Less liquidity for the dollar means rising dollar values, putting downward pressure on oil prices. QE’s reversal could also mean a slowing economy – meaning less demand for oil, also a bearish pressure.

State Department Approves Keystone XL

It may seem surprising after all the headlines of various environmental battles we’re still talking about Keystone XL. But yesterday, the State Department reviewed the Keystone’s construction plan in Nebraska and gave the official “okay” to build. Of course, construction won’t even begin until 2019, but the psychological benefits of the approval could cause WTI prices to ease lower a bit.

Keystone XL will make it easier to bring crude oil from Canada to the Gulf Coast, allowing for easier export. The new pipeline will help resupply Cushing stocks that have been steadily declining over the past month, and will provide a buffer against shortages like the Syncrude production outage that’s been keeping WTI prices high lately.