Rising Fuel Stockpiles Outweighing Rising Stock Markets

Rising fuel stockpiles are outweighing rising stock markets as RBOB gasoline futures trade lower for a 6th straight session and the rest of the energy complex continues to hover near multi-month lows.

US equities had a huge rally Tuesday, which seemed to help energy prices pull back from the multi-month lows, after the FED Chairman Jerome Powell suggested that an interest rate cut may be coming to help offset potential impacts of the trade wars. The CME’s fedwatch tool is showing a nearly 70% probability that the FED will cut rates by at least 25 points by the end of July following those statements, up from less than a 30% probability just a week ago. With expectations changing that rapidly, it seems like the market may be setting itself up for disappointment if that rate cut doesn’t come soon.

Unfortunately for the beleaguered bulls in energy contracts, the equity-induced bounce didn’t hold up after the API was said to report across-the-board builds in inventory last week. Diesel stocks were estimated to have the largest increase of 6.3 million barrels, while crude stocks were up 3.6 million and gasoline supplies increased by 2.7 million barrels. The DOE/EIA’s weekly report is due out at its normal time of 9:30 central.

The storms moving across the Gulf of Mexico are not expected to develop into a tropical system, but they are expected to bring flooding rains to refinery country. The majority of gulf coast refineries, and more than 1/3 of the country’s total, and are covered by the flood alerts through the end of the week. While major refinery damage from a disorganized system like this seems unlikely, it is certainly possible that it could further disrupt pipeline and/or marine vessel traffic and perhaps back up barrels destined for export, leading to more inventory builds in next week’s reports.

The additional rains are even less welcome in the Midwest, as it looks like a record amount of farm land will go unplanted this year. The charts below show how that continues to put a bid under ethanol prices, while diesel differentials in the region are collapsing.

A Wall Street journal survey of 10 investment banks suggests the latest price plunge hasn’t changed their outlooks for oil prices in the back half of the year, with most still targeting Brent around $70. The bulls will find solace in their predictions that fundamental supply tightness will eventually outweigh trade fears in sending prices higher, while the bears will find solace that these predictions come from the same institutions that made up credit default swaps on mortgage backed securities.

CLICK HERE for a PDF of today's charts