Over The Shoulder

The oil market seems to be looking over the shoulder season even as there are signs that because of refinery maintenance, oil supplies will probably rise. Not only did we hear talk from private forecasters of a big supply increase in the Cushing Oklahoma delivery point, but also talk that bad weather in the Texas area could inflate supply. Now normally when faced with the possibility of rising supply and the impending refinery maintenance season the oil price would fall, maybe hard. Yet oil is hanging in as it looks over the shoulder. The reasons why are clear; China – U.S. trade talks progress, U.S. sanctions on Venezuela’s Maduro regime, Iran oil sanctions and the fact that the U.S. economy continues to defy market skeptics.

For the U.S. - China trade talks it seems that March 1st is not a “magical date,” so says President Donald Trump. In other words, the President is giving China some wiggle room to come to an agreement before the U.S. makes the move. The Wall Street Journal quoted the President as saying, “The real question will be, will we raise the tariffs?” Mr. Trump said Tuesday. “I know that China would like not for that to happen. So, I think they are trying to move fast so that doesn’t happen. But we’ll see what happens.”  He said, “I can’t tell you exactly about timing, but the date is not a magical date. A lot of things can happen.” If a deal does happen, this will be very bullish for oil. Chinese oil demand that is still near record highs, despite an economic slowdown, would go oil demand crazy after they see tariffs lifted. 

The market also realizes that the ongoing sanctions on Venezuela will continue to draw on a heavy crude oil supply that will be needed when refiners ramp up production. While we are seeing reports that Canada is trying to rent trucks and train cars to replace the heavy sour Venezuelan supply, the logistical limitations are going to make that hard to accomplish to the degree that may be needed. For refiners, the good news is that they will be in maintenance, which may give them time to build up some heavy supply but regardless, the longer Venezuelan crude is held in limbo, the more bullish it becomes for gasoline and diesel.

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