Hydrocarbons, Banks and Interest Rates

Editorial by Geoffrey Lakings for Industrial Info Resources (Sugar Land, Texas)--As was mentioned in this week's IIR Market Scorecard 'tis all about whether or not it is indeed a bank contagion the world is embroiled with which will continue to roil the financial markets; thereby, greatly affecting hydrocarbon demand.



For as we now know that many parties worked long into the night over this past weekend to ensure UBS could indeed take on Credit Suisse. [In a fashion like back in 2008 when Bank of America agreed to take on Merrill Lynch]. Now many a market participant is holding their breath to see if this agreement will indeed "staunch the hemorrhaging."

• US News & World Report: Oil Prices Rebound After Hitting Lowest Since 2021 on Banking Fears: Oil's early slide occurred despite an historic deal in which UBS, Switzerland's largest bank, agreed to buy Credit Suisse in an attempt to rescue the country's second-biggest bank.
  After the deal was announced, the U.S. Federal Reserve, European Central Bank and other major central banks pledged to enhance market liquidity and support other banks. "There's a lot of fear-based movement (in oil prices)," Price Futures Group analyst Phil Flynn said. "We're not moving at all on supply and demand fundamentals, we're just moving on the banking concerns."

FXEmpire

• As one can witness WTI literally cratered over the weekend; albeit with a recovery of late back above $70 -- which was expected & mentioned in the above weekly Market Scorecard.
• ...so promising signs here...

So now all eyes turn to the Fed as a critical rate decision is being debated.

• MarketWatch: U.S. stocks modestly lower as crucial Fed rate decision looms: U.S. stocks traded modestly lower at midday Wednesday as traders eyed the difficult choice facing the Federal Reserve to raise its interest rate to fight inflation or pause to quell concerns about banking sector stability.
  Futures markets are pricing in an 86% probability of a 25 basis-point hike in the fed-funds rate to a range of 4.75% to 5%, according to CME FedWatch Tool. However, that high level of conviction belies the intense uncertainty over monetary policy in recent weeks as investors have tried to gauge how the central bank will navigate the need to maintain the battle against inflation, which is still running at three times its 2% target, with a desire not to pile further interest rate pressure on a fragile banking sector.

Not to mention what will be the actions of the World Central Banks to mitigate this crisis as they have already said they will "...increase the flow of the US greenback..."

• Fortune: Central banks around the world have said they'll boost the flow of U.S. dollars into the global financial system: The Federal Reserve and five other central banks--the Bank of England, the Bank of Japan, the European Central Bank, the Bank of Canada, and the Swiss National Bank--announced on Sunday that they would work together to increase the availability of U.S. dollar funding throughout the global financial system.
  In an announcement on Sunday, central banks said more liquidity would be provided via existing "swap lines."
  The Fed and the Bank of England describe the swap lines as "an important liquidity backstop to ease strains in global funding markets."

So wait a minute. Scratching my head. So let me get this straight -- the Central Banks are saying more cash flow in a time of rampant inflation will be a good thing. Let me be on the record -- along with Cameron Parry of TallyMoney -- to express some serious doubts as to the wisdom of this plan.

• Fortune: Central banks around the world have said they'll boost the flow of U.S. dollars into the global financial system: "The 2008 financial crisis left a legacy of deep public distrust of the big banks--a broken trust that has never healed and is now exposed once more by the returning threat of contagion and bank bailouts," Parry said.
  "Six of the world's biggest central banks are now pumping money into the financial plumbing that links the global banking system. While this should stave off the immediate risk of a banking crisis, it will do little to restore savers' confidence in the fragile banking system itself."

Anybody got any gold bullion?
FXEmpire


Or Bitcoin?

• CoinDesk: Bitcoin Emerges as Safe Haven as Traditional Finance Faces Turmoil: In the middle of all this confusion sits crypto, which has steadily rallied and is now seen by many investors as a bulwark against another financial crisis. But can digital assets fully escape the trajectory of economies in decline? Should a banking crisis, inflation or further rate hikes deliver the hard landing that many assume is inevitable, will bitcoin be the escape pod?

All that being said there are still those pundits who are still looking to the Dragon (China) and their increasing imports of hydrocarbons--because of perceived economic growth--to stabilize both these financial as well as commodity markets. Might be wishful thinking though. Time will tell. [I myself am always wary of Dragons, though.]

Back to reality, what we can tell is that in addition to this financial turmoil, Europe will shortly be in the midst of a "disti crunch." This whilst France is still dealing with Refinery strikes.

• Reuters: European diesel tightens, crude weakens as French refinery outages linger: European diesel markets are flashing warnings of tightening supply while crude oil markets are weakening after nearly two weeks of disruptions at French refineries due to strike action, traders said.

Although, fortunately the world is witnessing China exporting more products.

• Energy Intelligence: China Exports More Fuel Than Expected: China's combined exports of gasoline, diesel and jet fuel exceeded expectations, totaling 10 million tons in January-February.
  Industry had suggested that they would likely hit 7 million tons at most.
  This year's January-February fuel exports were the highest for the two-month period since China started exporting significant volumes of refined products in 2014, customs data show.

And turning our eyes Stateside from IIR's Hillary Stevenson Highlights & Hot Takes we can see the U.S. beginning to push maintenance out to prepare for greater refinery utilization.
Initially IIR data indicated that we would see a second spring refinery maintenance peak in April, but that peak is getting smaller and smaller by the minute. Higher domestic refinery runs generally help bolster WTI prices (if they can win against industry banking concerns) and will likely decrease US crude exports to Europe in the short term.
Pushed maintenance

• Exxon pushed April maintenance at a Beaumont CDU to 2024
• P66 pushed March maintenance at a Sweeny CDU to 2024
• Unplanned outage resolutions
• Toledo is coming back imminently with boilers restarted following a fire in 2022
• Superior is back in the hands of the operations team; had been shut since 2018

Not to mention one of the last U.S. Refinery expansions is coming on-line.

• Industrial Info News: ExxonMobil's Beaumont Opens New Chapter in Gulf Coast Refining: Researched by Industrial Info Resources (Sugar Land, Texas)--Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) has begun operations at one of the biggest, most anticipated projects in the ever-growing Oil & Gas Industry along the U.S. Gulf Coast, the energy company said Thursday. The $2 billion expansion of its massive refining complex in Beaumont, Texas, brings the facility's total processing capacity to more than 630,000 barrels per day (BBL/d), making it one of the largest U.S.-based refineries.
  Industrial Info is tracking more than $74 billion worth of ExxonMobil projects worldwide, including more than $23 billion worth in the U.S.

All of this will contribute to increased US refinery utilization, which will hopefully produce more refined products to export to Europe as we prepare to step into Summer Driving season.

For we know from the recent EIA AEO that the U.S. will be who many--like Europe--in the world turn to in regards to "providing energy security."

• EIA Annual Energy Outlook: High international demand leads to continued growth in U.S. production, and combined with relatively little growth in domestic consumption, allows the United States to remain a net exporter of petroleum products and natural gas through 2050 in all AEO2023 cases.

Therefore the question remains; will this not be a banking contagion the world will be dealing with which will disrupt--in so very many ways--world energy commodity & financial markets.

As we just learned of the Fed announcement.

• Barron's: Today's Fed Meeting: The Federal Reserve raised interest rates by a quarter of a percentage point Wednesday, its ninth increase in about a year.
  The central bank suggested an end to rate hikes is near by removing a line from its statement about "ongoing increases." The median forecast among members of the Federal Open Market Committee is for one more increase this year.
  Officials also see slower economic growth than they did a year ago, according to the so-called dot plot.

Therefore let IIR Energy's Dedicated Market Research place the world at your fingertips. Tomorrow's News Today. Ask us! We have answers!

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Additional IIR Resources:

• IIR Team Email: iirteam@iirenergy.com
• Latest IIR Crude & Products Market Scorecard

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 Trillion (USD).