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“There are no easy fixes nor any short-term answers to the global supply and demand imbalances aggravated by Russia’s invasion of Ukraine.” – Mike Wirth, CEO of Chevron
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It was fun while it lasted. In the latest example of the two steps backward, one step forward market, most of yesterday’s rally, which wasn’t enough to erase the declines of the prior two trading days, is poised to get erased at the open. Besides the fact that it’s a weekday and the market is open, there isn’t much in the way of a catalyst for this morning’s weakness. Oil prices are sharply lower with WTI down nearly 5%. Unlike most other days this year where equities and US Treasuries have moved in tandem with each other, Treasuries are actually rallying this morning.
There’s no economic data on the calendar to speak of today, but it will be a busy day of Fedspeak with Powell testifying in front of the Senate while Barkin, Evans, and Harker will also be speaking throughout the trading day.
In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, central bank moves, activity in the metals markets, and overnight economic data from Asia and Europe.
The quote above came from a letter to President Biden from Chevron (CVX) CEO Mike Wirth ahead of a scheduled meeting on Thursday between Energy Secretary Jennifer Granholm and US oil executives. The letter argues that the Biden “Administration has largely sought to criticize, and at times vilify our industry.” Wirth goes on to note that “bringing prices down and increasing supply will require a change in approach” and that the industry needs “clarity and consistency on policy matters”. Closing out, Wirth encourages President Biden that in addition to Secretary Granholm, he also “send your senior advisors to this meeting, so they too can engage in a robust conversation.”
Whatever side of the debate you are on with regards to energy policy, the current state of tension between the Federal government and the US oil industry can’t continue. While expectations are low, Thursday’s meeting will hopefully be more than a photo-op for both sides and instead help to bring some clarity to the strategy moving forward.
This morning, the Biden Administration has proposed a three-month holiday from the 18-cent per gallon federal gas tax holiday. While it sounds nice, the majority of economists and industry insiders have said it will do little to ease pressure at the pump and may actually worsen the situation by increasing demand. One study from Wharton found that a ten-month holiday would save consumers between $16 and $47 in total. The current proposal is for just three months which would imply total savings that’s barely enough to cover a McDonald’s value meal!
Despite the weakness in equity futures this morning and confusion surrounding US energy policy, oil prices are sharply lower. At a level of $104 per barrel, WTI has now pulled back 15% from its recent closing high on June 8th and has also broken the uptrend that has been in place since late 2021. Outside of the oil industry, just about everybody is rooting for this chart to keep moving lower. None more than Fed Chair Powell.
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