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US Gasoline Price Could Surge on Venezuela Crisis

gasoline price is getting too high, concept

By    |   Monday, 04 February 2019 08:57 AM

Venezuela in Crisis

Uncertainty around the political situation in Venezuela persists. The global and U.S. market concern arising from this is focused on the oil market impact. For the U.S. it is exacerbating a shortfall of dense crude oil, that leaves the refineries in the lurch while it underscores the limitations of U.S. shale oil.

It could be helpful keeping in mind that Venezuelan at 500,000 barrels a day is the U.S.’s second largest source of crude oil imports.

In simple words one could say that the sanctions on Venezuelan oil could leave the U.S. oil refineries short on the supplies they need. Many American refineries are configured to process a mix of heavy and light barrels and need both kinds to produce fuels like gasoline and diesel efficiently.

Analysts warn that a prolonged shortage of heavy crudes would push refiners to choose between paying a premium for heavy oil and cutting their processing rates, which would result into higher U.S. gasoline prices, the Wall Street Journal reports.

Optimism on China Talks

After last week, high-level trade talks between the U.S. and China had been extended for a third day, President Trump was sounding optimistic about the chance of doing a deal with China over trade, the Asia Times reports.

Interestingly Trump also said on Twitter: “No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points.”


Besides all that, tomorrow, we get the ‘delayed’ State of the Union address by President Trump, which with the threat over another government shutdown that’s still lurking around, will be looked to by the financial markets.

Investors could do well keeping in mind that here is still a ‘debt ceiling’ debate coming and another budget to get through later this year.

Brexit Saga Continues

On the subject of the never-ending process of the interminably tedious UK-EU divorce continuous. Of course, it continuous because that’s what interminably tedious things do.

The Japanese car company Nissan has cited the ‘divorce’ as the reason why it will not be making their new X-Trail car in the United Kingdom (UK), but instead will be making it in Japan. The assumption that it will be ‘easier’ and more ‘efficient’ to trade from Japan to the European Union rather than the UK to the European Union does seem a little extreme and the ‘divorce’ was not the only factor behind the allocation decision. Nonetheless, the ‘political’ presentation of the decision is fueling yet more debate.

The BBC commented: “The car industry has long been worried about potential changes to trading rules after the UK leaves the EU. It's nervous about border taxes and customs delays disrupting its just-in-time model of manufacturing … Big businesses tend to stay out of politics. So Nissan's decision to highlight Brexit means it is clearly a concern in the minds of company executives.”

Eurozone Producer Price Inflation (PPI)

From the Eurozone we got the Producer Price Inflation data today, which is of some note as an indication of pricing power and to the extent to which inflation pressures build in the Eurozone is not without relevance this year.

Producer prices in the Euro Area fell 0.8 percent month-over-month in December, following a 0.3 percent decline in November. Considering full 2018, industrial producer prices advanced 3.2 percent.

For investors it could be helpful to take note that the Euro area PPI data is not quite as important as it is in the United States.

In the U.S., the wage and price cycle concentrates decisions into the fourth quarter and actions into the first quarter, so the start of year pricing power is a very important signal in the U.S.

This is not so much the case in the Euro area. Nevertheless, the PPI data is always worth paying attention to.

Besides all that, today in the U.S. we’ll get some ‘older’ data in the form of the November factory and durable goods orders. Maybe, but hopefully not, we must get used to fairly old U.S. data as the delays induced by the temporary government shutdown means more timely indicators could become less frequent.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Analysts warn that a prolonged shortage of heavy crudes would push refiners to choose between paying a premium for heavy oil and cutting their processing rates, which would result into higher U.S. gasoline prices.
us, gasoline, price, venezuela, crisis
Monday, 04 February 2019 08:57 AM
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