EIA Calls for 20 cpg Higher Diesel from IMO 2020

After closing above $52/bbl yesterday, WTI crude prices are dipping a bit lower this morning. The rally that brought prices from $45/bbl to $50/bbl appears to be waiting for fresh news to propel the market higher. This morning as the market awaits such news, crude oil prices are trading at $51.55, down 56 cents from yesterday’s close.

Fuel prices are also trading lower along with crude oil this morning. Diesel prices are currently trading at $1.8634, down 0.9 cents from yesterday. Gasoline prices are $1.3980, a loss of 1.3 cents.

The on-going government shutdown is beginning to weigh on the economy, as government spending comes to a halt and 800,000 government employees are going without paychecks. Shutdowns are not terribly unusual; since 1976, only one president (George W. Bush) has left office without having shut down the government at least once. But this shutdown has stretched 26 days now, making it the longest in US history. According to Kevin Hassett from the Council of Economic Advisors, each week of the shutdown cuts quarterly GDP growth by 0.13% – meaning the costs of this shutdown are already 0.5% of GDP growth. For context, Q1 2018 growth was just 2.2%.

Amid the government shutdown, the oil & gas industry has skated by relatively unscathed. Oil and gas drilling permitting has continued, and the EIA remains open to publish their normal weekly data. Yesterday, the EIA shared their Short-Term Energy Outlook, which was mildly supportive for prices. The agency upped its 2019 demand forecast slightly. The agency also reported on IMO 2020’s price impact for the first time, noting that diesel crack spreads would rise from 43 cents in 2018 to 48 cents in 2019 (since the volatilty is confined to Q4 2019), swelling to 65 cents in 2020. That represents a 22-cent increase in diesel prices relative to crude due to IMO 2020.

Yesterday the API released their weekly inventory data, showing a small draw in crude stocks and sizable builds in fuel inventories. The report was generally in line with market expectations, but given the unreliability of API data lately, markets are waiting for confirmation from the EIA later this morning before letting the report significantly alter prices.