Pre-market inventory: US oil is generally a cheaper option. No more
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber ? You can register here. You can listen to an audio version of the newsletter by clicking on the same link.
West Texas Intermediate crude, the benchmark for US oil prices, typically trades at a discount of a few dollars to Brent crude, the global benchmark.
But this morning short-term futures contracts for WTI and Brent are both around $115 a barrel – an indication of how the market has been muddied by the pandemic and war in Ukraine ahead of the busy summer driving season.
“This is an important development in my view,” Jeffrey Halley, senior market analyst at Oanda, told clients on Tuesday.
Fast rewind: Oil prices have surged over the past week. WTI and Brent are trading near two-month highs. The national average for regular gasoline in the United States hit a new record high of $4.52 per gallon on Tuesday, according to AAA.
The main contributor to the price spike is Europe’s scrutiny of an official embargo on Russian oil to punish Russian President Vladimir Putin, which is causing countries in the bloc to rush to source supplies from others markets.
Energy prices are also rising as China indicates it intends to ease some movement restrictions in the coming weeks, which could boost demand for fuel after a lull.
On Monday, Shanghai officials announced a three-step plan to “return to normal” by mid-June, and said on Tuesday that community spread of Covid-19 outside quarantine zones had been eliminated, an important turning point.
Aviation in China has risen from 25% at the start of this month to 40%, Janiv Shah, an analyst at Rystad Energy, told me.
All of this is coming ahead of summer in the United States and Europe, when demand for fuel surges as people jump in their cars and go on road trips and other vacations.
A New Wrinkle: That oil prices are rising in a tight market where supply can’t keep up isn’t surprising. But he is unusual for WTI and Brent to trade so close to each other.
Shah said the problem comes down to Europe’s pivot away from Russian Urals crude, which has sparked a mad dash to find replacement barrels in other parts of the market.
“We see the lack of these Russian crudes in the European refining system,” Shah said. “What it did was increase the value of all the remaining notes.”
At the same time, US refiners are trying to ramp up their activity to meet demand, which is also pushing WTI higher.
Bottom line: Western oil traders have fewer options than before as they fear breaching sanctions on Moscow and dealing with difficult logistics in the Black Sea. This means they buy whatever they can get their hands on, which distorts the market.
One caveat: if you look at WTI and Brent for July delivery, US oil is still trading at a discount of more than $2 a barrel, although the margin has narrowed significantly. Since May.
Abnormal dynamics could persist in the oil business for some time. Saudi Arabia’s energy minister said Monday that while countries that could theoretically increase production, refiners could not keep up.
“There is no refining capacity to match current demand and demand expectations this summer,” Prince Abdulaziz bin Salman told an energy conference.
Elon Musk escalated a public row with the Twitter CEO early Tuesday, saying his acquisition of the social media company “cannot go forward” until he gets more information about the prevalence of spam accounts.
Without citing a source, Musk claimed in a tweet that Twitter (TWTR) was made up of “20% fake/spam accounts” and suggested that Twitter (TWTR)’s filings with the Securities and Exchange Commission were misleading. The company said less than 5% of its daily active users are spam accounts.
“My offer was based on the accuracy of Twitter’s SEC filings,” Musk said. “Yesterday, the CEO of Twitter publicly refused to show proof of
Take a step back: Musk’s latest tweet casts further doubt on the fate of the $44 billion deal. Musk said Friday he was “temporarily suspended” but was “still committed to the acquisition.”
This pivot has fueled speculation that the world’s richest man could be using the bot debate to get a better price for Twitter, either as a negotiating tactic or out of necessity.
Shares of Twitter were down nearly 2% in premarket trading on Tuesday. The stock erased all of its gains in the weeks after Musk revealed his stake in the company and now trades at $36.80 per share, well below Musk’s offer price of 54.20. $ per share.
Unconventional Tactics: On Monday, he exchanged a series of tweets with Twitter CEO Parag Agrawal over the spam account issue.
Twitter suspends “over half a million spam accounts every day,” Agrawal wrote. He also reiterated the 5% stat, saying that estimate is based on “multiple human reviews” of thousands of “randomly sampled” accounts.
The company has previously acknowledged that while it believes its estimates are “reasonable”, the metrics have not been independently verified and that the actual number of fake or spam accounts could be higher.
Musk responded to Agrawal’s initial tweets with a poo emoji.
A month ago, as Russia’s war in Ukraine pushed the world to the brink of a food crisis, Indian Prime Minister Narendra Modi offered to help countries facing shortages.
“We already have enough food for our people, but our farmers seem to have made arrangements to feed the world,” Modi said in April. “We are ready to send the rescuers tomorrow very.”
Now those lofty goals have been abandoned, reports my CNN Business colleague Diksha Madhok. The country recently banned wheat exports as deadly heat waves in South Asia are slowing production and pushing local prices to record highs.
The move shocked international markets on Monday. Global wheat prices climbed 6%, with Chicago futures hitting $12.40 a bushel, the highest price in two months. Wheat futures prices fell slightly on Tuesday, but are still up almost 50% since the start of the war.
While India is a huge producer of wheat – even this year the country is expected to produce more than 100 million metric tons – most of the grain is used to feed its population of 1.3 billion. By the government’s own admission, the country “is not one of the top 10 wheat exporters”.
But the alarm over its export ban underscores the fragility of global food supplies and the extent to which agricultural traders remain jittery. The protectionism of countries like India only exacerbates these concerns.
Walmart (WMT), Home Depot (HD) and JD.com (JD) report results before US markets open.
Also today :
- US retail sales for April arrive at 8:30 a.m. ET. Economists forecast they rose 0.8% month-over-month, up slightly.
- Federal Reserve Chairman Jerome Powell speaks at a Wall Street Journal event at 2 p.m. ET.
Coming tomorrow: More revenue from retailers including Lowe’s (LOW), Target (TGT) and TJX (TJX).