U.S. credit rating: On Friday, Moody’s followed suit with other two major agencies in downgrading U.S. sovereign credit rating by one notch from Aaa to Aa1 as the country faces higher interest payments and wider fiscal deficits. The move was met with criticism from President Trump’s administration but investors are not yet persuaded by early efforts to cut spending and raise revenue. Plus, the current tax bill under consideration (extending 2017 tax cuts from Trump’s first term) is suggested by Moody’s to not lead to a sustained, multi-year reduction in deficits with anticipation of federal debt burden only rising over next decade. This current downgrade follows Standard & Poor’s move to do so after 2011 debt ceiling crisis and Fitch which did so in August 2023 when they cited expected fiscal deterioration and repeated down-to-the-wire debt ceiling negotiations that threatened bill paying of the government.
China: Today, the National Bureau of Statistics (NBS) data showed China’s industrial output grew 6.1% in April compared to one year earlier. This level is better than the 5.5% rise expected, per a Reuters poll. Yet, it is a decline from the 7.7% number experienced during March. The country indicated earlier this month that exports have been better than anticipated with exporters rerouting shipments and buying more materials from China as global trade gets re-ordered in consideration of President Trump’s tariffs. Despite recent surprise U.S.-China agreement which includes 90-day pause on tariffs imposed on each other since early April, economists do believe the export-driven economy of China still does have plenty of challenges considering it is facing 30% tariffs on top of existing duties. Also, retail sales in the country showed a 5.1% rise during April but that was off from 5.9% in March and was lower than 5.5% forecast.
Rig Count: Per Friday’s weekly Baker Hughes report, it showed that U.S. energy firms had cut the number of oil and natural gas rigs operating for a 3rd week in a row. The total oil and gas rig count now sits at 576 after dropping by two on the week to May 16. Oil rigs were off by one to 473. This is the lowest level since January with capital expenditures decreasing for U.S. exploration and production (E&P) companies. Despite analysts’ expectations of 2025 experiencing a decline in crude prices for a third consecutive year the U.S. Energy Information Administration (EIA) is still projecting a rise in crude output during 2025 [to around 13.4 million barrels per day (bpd)] after 2024 had a record 13.2 million bpd. This expectation, however, has been tempered from earlier 2025 EIA outlooks.
Market Overview: The energy complex is beginning the week lower on the data coming out of China indicating slightly slowing of growth along with Moody’s downgrade of U.S. credit rating. Plus, U.S. Treasury Secretary Scott Bessent commented that trading partners not negotiating in “good faith” would have tariffs imposed at the level threatened last month. Furthermore, the market will await additional updates regarding Russia-Ukraine war (with Trump and Putin anticipated to speak this morning about a ceasefire) and Iranian negotiations.
RBOB Gasoline (daily)
On Friday, the rbob gasoline contract was able to show a small gain of $0.0074 for the session which meant it was also up on the week by 1.58% with the Memorial Day holiday quickly approaching. Of course, this is the unofficial kickoff of the driving season and AAA is anticipating solid travel activity with a 3% increase expected over last year. Also, premium gasoline inventories in mid-U.S. have come off concerning lows earlier in the month which had sparked massive rally. April low rbob settle of $1.9613 was on April 10th and current levels are more than $0.16 above it so will be interesting to see if this movement higher will continue into driving season. Note the start to this week has the market off by around 1% as will monitor if 50 Day Moving Average (DMA) of $2.1186 continues to be supportive.
A relatively quiet day in the market saw early weakness after Friday's announcement by Moody's that they were slightly downgrading U.S. debt. As day progressed, the complex moved a bit higher and West Texas Intermediate (WTI) crude even settled with small gain (of $0.20) to $62.69 while the products finished in the red. RBOB gasoline was only down $0.0030 (to $2.1388) while ULSD distillates fell $0.0129 (to $2.1277). Elsewhere, per Deputy Foreign Minister Majid Takht-Ravanchi, it was indicated U.S.-Iran nuclear talks will lead nowhere if U.S. insists on Iranian enrichment activity to halt. That commentary is minimizing hope for an agreement which could result in easing of U.S. sanctions allowing Iran to increase oil exports by 300,000 to 400,000 barrels per day (bpd).
