Market Currents – Talking the Talk Edition

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jIn honor of what would have been Johnny Carson’s 90th birthday, the oil market is full of chatter to finish the week. We’ve had a bunch of economic releases to promote discussion overnight, while monetary easing is the talk of the town today.

Japan’s flash PMI manufacturing print kicked off a decent dump of data, coming in at its highest level in over one and a half years. Across to Europe, and the Eurozone’s flash prints for both manufacturing and services were better than expected, led by German services and a decent showing from France for both numbers.

After a mottled picture has been presented by individual Eurozone countries in the last year or so, we are seeing some alignment in the data of late, with France, Spain, and Italy all joining Germany in looking a little more shipshape.

Japan flash PMI

Broader markets are shirking pre-Halloween scares today, and are embracing signs of looser monetary policy across the globe. The crude complex, however, has had concrete boots placed on it by a soaring US dollar, as the door is opened once again for the potential of a US rate hike in December.

This is not only because further stimulus measures may be underway from the Eurozone starting in December, but because China has just cut interest rates again to try and provide a caffeine shot to its tiring economy.

It not only cut its benchmark interest rate and one-year borrowing rate (to 1.5% and 4.35%, respectively), but also its reserve requirement ratio, trying earnestly to promote borrowing, investment, and spending. Interest rates have now been cut six times since last November.

Hurricane PatriciaOn a very serious note, Hurricane Patricia, which is off the Western coast of Mexico, has become the strongest hurricane on record. Winds have topped 200 miles per hour, and are bringing the potential for 40-foot waves along the Mexican coast, as well as violent flash flooding. There is a chance that the storm could carry across land over the weekend, and into the Gulf of Mexico early next week – potentially threatening oil infrastructure.

And now for something completely different. The chart below highlights how the spread between regular and premium gasoline has been increasing, in no small part due to the US shale boom. Soaring production from shale plays has meant the market has been well-supplied with with low-octane naphtha barrels, while high-octane blendstocks are less available, and have accordingly become increasingly costlier.

Demand for premium gasoline has also been outstripping regular gasoline, with low prices encouraging a shift to premium grade-propelled vehicles. Finally, given 90% of gasoline sales are for the regular grade, gas stations are likely to tilt their pricing more competitively toward regular gasoline. All of this is driving premium gasoline to an increasingly wider, um, premium:

premium fuel