Markets Await Oil Reports, Trump Re-Affirms Biofuel Support

Prices eked out small gains on Friday, halting the 8-day down streak, though barely.  Over the weekend, sentiments shifted to a more positive outlook on the economy given US-China trade talks resuming and a possible rate cut from the Federal Reserve. This morning crude oil is trading at $53.53, up 72 cents (1.4%) from Friday’s close.

Fuel prices are rising this morning as well. Diesel prices are currently trading at $1.9111, up 1.7 cents from Friday’s close. Gasoline prices are trading at $1.5799, up 0.7 cents.

Traders are hopeful for positive progress from the US-China trade talks scheduled to take place later this week. Both countries have seen very weak manufacturing data in recent months which could add pressure to reach some sort of agreement. Conversely, a strong US jobs report released on Friday may provide ammunition for Trump to maintain his aggressive trade stances, since China is suffering more than the US in response to tariffs.

Markets are eager to review the IEA, EIA and OPEC reports that are to be released this week. Most will be focused on the demand side, to see how oil users are responding to economic pressures. But of equal importance will be production forecasts.

For several weeks now, US active rig counts have declined. With oil prices generally in the low- to mid-$50s this year, some oil producers may be feeling the squeeze. Overall crude production has fallen as well, largely attributable to declining use of conventional crude fields. But while rig counts have fallen across all shales regions, production continues rising in five of seven shale regions (Anadarko and Eagle Ford, in Oklahoma and Mid-west Texas respectively, have seen moderate drops in total output over the last 4-6 months). Even as companies deploy fewer rigs, they’re getting better at tapping into high-impact wells that increase output per rig. Although US crude production has moderated over the last two months, it appears shale producers are poised to continue production even with crude prices hovering in the low-$50s.

New Biofuel Rules Boost Ethanol, Biodiesel consumption

On Friday, the Trump administration made waves for fuel markets by issuing new rules to increase consumption of biofuels. After handing out several small refinery exemptions over the past few years that lowered total biofuel usage, the Trump administration is now requiring that those exemptions be made up elsewhere, though the announcement was short on details. The measure will ensure that the over 15 billion gallons of biofuel mandated in the Renewable Fuel Standard are blended in 2020.

The move is a win for biofuel producers and will likely help boost Trump’s approval in Midwestern farm states such as Iowa and Nebraska. Between declining biofuel support and reduced agriculture purchases from China, US farmers have been hit hard over the past year. At the same time, some states are pushing back, especially those with higher refining output and low biodiesel production such as Ohio and Pennsylvania. Oil companies in these states say the action will place undo hardship on larger refineries and make them uncompetitive.