Publications: Notes at the Margin

Market Uncertainty: A Distillate Glut? The Consequences of a Distallte Price Collapse (September 21, 2015)


The United States Federal Reserve Board stood pat Thursday. It put what would be the first interest-rate increase in seven years off at least for a few more months. The market response Friday was negative. Stock markets across the globe declined. The Dow Jones lost 1.7 percent. The S&P 500 dropped 1.6 percent. WTI followed, down 4.5 percent. All of its gains over the week were eliminated in a day. Jon Hilsenrath, The Wall Street Journal's chief Fed watcher, writes that Fed officials have several concerns: China's slowing growth, the dollar's strength, and the US economy's long-run growth potential. 


Two lines in Friday’s Argus Global Markets connect concerns about China’s economy to oil: "Chinese firms are seeking to ship surplus gasoil to Singapore because of weakness in domestic demand…. Unipec has provisionally booked tankers to move at least 679,000 bbl to Singapore." Indeed, distillate inventories are high in every world market. In the US, total distillate stocks are high. They are also high in PADD I and PADD III. Distillate stocks in Europe are also at or near record levels. This week's report discusses the potential for a distillate price collapse and the possible market implications.


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