Economic Outlook Weighs On Futures
After a mixed start Thursday morning, the entire complex moved lower before the close on continuing economic concerns. Fitch Ratings downgraded Greece’s credit rating from B- to CCC, on “heightened risk” that the country will not be able to sustain its membership in the euro currency union; and traders speculated that Spanish banks may have their credit ratings lowered. Adding more pressure, the dollar strengthened and there was further weakening in equities. Refined product losses that appeared tied to Brent moves, accelerated before the close. The session ended with heating oil down .0486 at 2.8490, RBOB down .0427 at 2.8782 and crude down .25 at 92.56. Brent oil for July settlement ended 2.26 lower at 107.49.
DJIA’s Slide Continues
The DJIA posted its 11th loss in 12 days after several discouraging U.S. economic reports unnerved investors that were already stressed about a possible exit by Greece from the euro. The DJIA lost 156.06 points to close at 12,422.49, down 6% for the month. The two-week slump represents a sharp reversal since May 1 when the index closed at a four-year high.
Surprise Contraction
The Conference Board reported Thursday its measure of future U.S. economic growth fell .1% in April after six months of increases. The two largest negatives were building permits, which offer a leading look at the housing sector, and initial jobless claims, which offer insight into the jobs market.
Manufacturing Shrinks
Declines on Wall Street also accelerated after the Federal Reserve Bank of Philadelphia reported manufacturing slowed in the mid-Atlantic region for the first time in eight months. New orders decreased and firms cut jobs. Factory activity fell to -5.8 from 8.5 in April. Any reading below zero indicates contraction. This data conflicted with a survey by the New York Fed that showed stronger growth in that state in May.
Pipeline Reversal Narrows Spread
Operators of the 500-mile Seaway Pipeline that has been flowing North since 1995 completed pipeline reversal modifications Thursday and announced it will open the spigots this weekend. This move is expected to reduce a vast glut of oil that has pooled in the middle of the country and narrowed the spread between the oil market’s two benchmark contracts. The spread between the two contracts for WTI, the U.S. benchmark, and Brent, the European standard, contracted nearly $2 Thursday. The difference between the two contracts has narrowed around $5 since early last month. Historically, the contracts usually traded within pennies of each other, before the gap opened up over the last two years. WTI was pressured by the excess supply bottled up in the Midwest, while Brent was pushed up as Middle East tensions increased supply concerns.
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North Dakota Exceeds Alaska
North Dakota’s crude production continues to increase according to the latest data issued by the North Dakota State Industrial Commission. With the increase, North Dakota is now ahead of Alaska as the second-highest crude producing state in the U.S. Texas is the largest oil producing state. Increased demand for the price-advantaged crude has produced 17 operating transloading facilities in the Bakken oil field that deliver the bulk of their shipments to the Gulf Coast, with limited deliveries to the Northeast and West Coast.
Today’s Trend
Trading is mixed this morning with RBOB gaining strength while crude and heating oil are moving lower. Gasoline traders are indicating recent product draws, falling prices and a weaker European market have prompted renewed interest in the gasoline arbitrage from the U.S. to Europe. The Atlantic Coast is normally a recipient of European-produced gasoline, but slow demand along the East Coast and a strong European market have made arbitrage opportunities thin throughout much of the year. Crude remains under pressure from the continuing uncertainty from Europe. Last night, Moody’s downgraded 16 Spanish banks, increasing the already precarious situation in the Eurozone.
At this time heating oil is down 10 points, RBOB is up 115 points and crude is down 40 cents.
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