Subject: Holiday Weekend Brings Another Sell-off

On Monday during holiday trading, oil broke through the $45 threshold and quickly fell as low as $42.50. Once again, the quick action felt more technical than fundamental, as not much “new” occurred over the holiday weekend to justify a 6% sell-off. Crude is currently rallying this morning, up $1.71 to $44.24.

After setting new lows on Monday, fuel prices are working their way higher today. Diesel prices are currently trading at $1.6857, up 2.4 cents from Monday’s close. Gasoline prices are $1.2954, up 4.7 cents.

With markets plummeting and scraping multi-year lows, OPEC is stepping in to balance the equation. Several countries have hinted at their openness to hold an “extraordinary meeting” to further reduce output and lift prices. That commitment has helped reassure the trade, bolstering this morning’s rally.

Shutdown Slightly Bearish for Oil

We’re in the middle of a government shutdown, though this particular shutdown feels less impactful than prior ones. Other spending bills have created funding sources for many institutions. For a list of what’s open and what’s not, check this article from Vox.

What does the shutdown mean for the oil industry? From a reporting standpoint, it’s worth noting that the EIA has historically maintained its activity for weeks after a shutdown, so expect weekly data to continue. On the flip side, the CFTC’s weekly report, which provides insights into futures markets including oil, will be delayed.

Turning to the fundamentals, the shutdown will be bearish for economic growth, which in turn will reduce fuel demand. Most expect a week-long shutdown to have only a mild impact on GDP growth, with forecasts ranging from 0.1% to 0.5%. However, if the shutdown extends for a prolonged period, there could be major economic repercussions.  Government shutdowns impact demand in several ways – temporary unemployment of government employees, lack of reporting distorting markets, less spending on projects, etc.

The shutdown likely will not end this week, making the prolonged scenario seem more likely. Democrats in the Senate are filibustering the bill, requiring a 60-member majority to overcome. Democrats are set to take over the House in January, and until then no Senate Democrats will cross the aisle to pass a funding measure.