Covid’s current demand weakness has not offset the glaring supply situation that persists.
Tuesday was day two of the Bulls’ ascent in the Fuel Markets.
Chartists had a field day with bullish trendlines and hungry buying signals.
Those hoping to find the bottom of the August Bear plunge were greatly disappointed in the Fuel Markets on Thursday. The Bears took it to the Bulls for the sixth consecutive day. First, Covid continues to march feverishly in the US. Second, the dollar strengthened after the Federal Reserve announced they would slow their pace of bond buy-backs, and the US weekly initial unemployment claims was smaller than expected. On the travel front, Wednesday’s Traveler Throughput was down 4.7% over the prior Wednesday and dropped another .10% in the 7-day average versus 2019 according to TSA data. The daily travel declines provide ongoing evidence of softening demand. Friday is a slow scheduled economic news day. The best hope for the Bulls continues to be bargain hunters and chartists believing their models found the bottom at long last.
The Bears continued their winning streak on Tuesday in the Fuel Markets as demand remained in center focus. In the first sign of demand troubles, the US Census announced a 1.1% decline in retail sales versus June. Analysts had projected a 0.3% decline. The second warning sign came from the API who reported Crude inventory declined 1.2MM barrels which was less than inventory forecasts for the EIA’s report and suggests fuel demand is softening. The S&P Platts survey expects the EIA’s Wednesday report to show Crude to drop 3.1 MM barrels, Gasoline to decline of 2.3MM barrels and Distillate stocks to rise by 700K barrels. While the API inventory declines are less than forecasts, they are still declines. Supply still plays its part in the equation, so the Bulls are not dead yet.
Covid’s impact was felt again on Monday in the Fuel Markets. A series of disappointing economic data points from China helped continue the Bear’s recent success. Retail had its weakest showing of the year. The growth in industrial production was the slowest in 11 months. News is also disappointing in the US airline sector. Last week, Southwest Airlines alerted investors about weakness in Q3 bookings. This week, the TSA’s daily travel count shows Sunday’s 7-day average traveler count is down 3% over the prior week. In early July, traveler throughput had edged to over 85% of the same time frame in 2019. That number has now dipped to 78.5%. For Tuesday, watch for the release of US retail sales and business inventories in the morning and the API’s inventory stats late in the day.
The Bulls bounced back in the Fuel Markets on Tuesday as the US Senate passed a $1 trillion infrastructure bill. Late in the day, the API released their inventory counts Tuesday with decreases in Crude and Gasoline inventories of 673K barrels and 1.4MM barrels respectively. Distillates gained 673K barrels. Focus on Wednesday will be the weekly EIA report. S&P Global Platts’ survey predicts decreases across the board with Crude supplies dropping 600K barrels, Gasoline 2.4MM barrels and Distillates 600K barrels. The variances between the Gasoline and Diesel levels and the S&P Forecast could drive fuel prices lower if the EIA concurs. An additional market influencer on Wednesday will be from the release of the monthly US Consumer Price Index.
The Bears held their ground in the Fuel Markets on Monday. China’s covid struggles are creating demand concerns in the world’s second largest fuel consuming market. As an example, seat capacity for Chinese travelers has dropped 32% thanks to new restrictions. Both Goldman Sachs and JPMorgan Chase lowered their growth forecasts for the Chinese economy. In the US, the TSA reported 2.8% fewer travelers week-over-week. While the reduction is in part due to schools reopening, the decrease is larger than during the same period in 2019. The Bulls were aided with a series of storms forming in the Atlantic with one particularly concerning to Florida. Tuesday’s trading will be guided by the dollar’s continued strength from Friday’s jobs report and by storm path updates.
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