US resolves debt ceiling issue; durable goods orders soft; US service sector slows; Indonesia to join TPP; UST 10yr yield 2.02%; oil price falls; NZ$1 = 67.8 US¢, TWI-5 = 72.7

US resolves debt ceiling issue; durable goods orders soft; US service sector slows; Indonesia to join TPP; UST 10yr yield 2.02%; oil price falls; NZ$1 = 67.8 US¢, TWI-5 = 72.7

Here's my summary of the key events overnight that affect New Zealand, with news that ahead of tomorrow's Fed, RBNZ and Friday's BofJ rate decisions, political peace seems to have broken out in Washington.

Congress seems to have agreed to extend their debt ceiling and the President has agreed to submit a lower spending plan. This stress point may have passed - until the ceiling is reached again.

American durable goods orders were soft in September although not quite as soft as markets were expecting. And that softness has flowed through to their October services PMIs. Although their service sector is still expanding fast, the growth is definitely slowing. This data comes after factory data showed a rebound in October. Both indexes are at 54 indicating healthy expansion, but one rising, one falling.

And, hard on the heals of China saying unofficially that it would like to join the TPP, today we hear that Indonesia has also committed to join.

And, yesterday we noted a new way Chinese investors can get zero-deposit mortgages for Australian apartments; today there are reports revealing how cash is leaking through China's borders. China's newly-wealthy people don't seem to want to keep their money at home.

In New York, the UST 10yr yield benchmark slipped again and is now at 2.02%.

The US benchmark oil price is also lower again at just under US$43/barrel, with the Brent benchmark under US$47/barrel. The world is awash in oil made worse by significantly improving energy intensity. And that is true even in China, where economic growth is still running at close to +7% but heavy rail use, as an example, is falling at more than -10%. In the US, truck freight is getting an efficiency-jolt by Uber-like apps for owner-operators. The situation has changed so much that the US is actually planning to sell down its now unnecessary strategic oil reserves.

The gold price is soft as well at US$1,165/oz.

The New Zealand dollar starts today basically unchanged from this time yesterday at 67.8 US¢, but higher against the Aussie at 94.2 AU¢, and unchanged against the euro at 61.4 euro cents. The TWI-5 is stable at 72.7.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

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Reuters have last night reported a massive glut of "unwanted " diesel and jet fuel clogging up European ports , and predicting a long sustained slump in prices .

It begs the question ........why are we still paying so much for Diesel here in NZ ?

Aussie diesel is under $1 in some places across the ditch .

I suspect there is price collusion in the oil companies here

You are completely missing the role of tax. The Europeans give a big advantage to diesel which is why they have rushed down the false path. Each country imposes different tax on diesel. It's collusion by countries, not the refiners.

Long time ago I worked in Alberta and the oil rush was in full swing,everyone talked oil. There last year and they still do with a new Husky pre breaker plant just down the road. Also Husky shifting head office from Calgary to up north. looked odd seeing an office block in wheat country.
Then Diesel was much cheaper to make but from memory low sulfur diesel was going to change that.
My engineering mate in Holland tells me that the new diesels are very low emission but he could have been getting his info from VW. He tells me most of the pricing is about, 'the tax'.
Found this, it's a bit old but informative.

Each and every oil well produces oil with different characteristics. In most oil fields, production for the wells are similar, but not exactly the same composition. 'Heavy' crude oil, like the stuff in Saudi Arabia and Venezuela does not have enough hydrogen to balance the carbon--or too much carbon for the amount of hydrogen said the other way. The 'ideal' fuel from an emission stand point is 100% hydrogen. Coal is up to 90% carbon. The higher the ratio of hydrogen atoms to carbon atoms the 'cleaner' the fuel is. Refining process 'convert' crude oil by splitting up big molecules, removing carbon, adding hydrogen, rearranging molecules, combining small molecules, removing sulfur, nitrogen and other contaminants. Most crude oil does not have enough hydrogen relative to carbon to meet fuel specifications.

U.S. refineries serve a market demand heavily weighted toward automotive gasoline. European refineries are more focused on diesel fuel production. Fluid Catalytic Cracking (FCC) was invented during World War II to make more and higher octane gasoline by catalytically cracking bigger heavy fuel oil(C20-C50+) molecules into primarily gasoline size (C6-C9) molecules.

FCC typically converts 75-85% of the feed into products smaller than the feed, with about 65-70% ending up in gasoline either directly or by combining the smaller molecules (C3-C4) with iso C4 in the Alkylation process (also developed in WWII to make very high octane aviaton gasoline.) FCC can adjust the yield pattern some, not to the yield pattern of European refineries.

Hydrocracking is another process for converting heavy molecules to smaller ones while also removing sulfur and nitrogen contaminants. Hydrocracking yields can be adjusted much more than FCC yields and thus can make more jet fuel and diesel fuel than can FCC from the same feedstocks.

Hydrocracking is expensive because of reaction conditions (2500psig,850F= high cost equipment) and it consumes lots of costly to make hydrogen. (2500scf /Bbl of feed) Hydrocracking can make 5% fuel gas,10% gasoline,30% jet fuel and 55% ULSD diesel from the same materials that FCC makes 5% fuel gas,70% gasoline, 10% high sulfur diesel, 10% heavy fuel.

The high price of road diesel relative to gasoline is market driven. Road diesel must, by law, have no more than 15 parts per million of sulfur. That is equivalent to only 2 grains of (uncooked)red rice in a quart jar of white rice. This requires 99.9+ % removal of sulfur from the material distilled from the crude oil (2%-4% sulfur) and processed into ULSD.

The Ultra-Low-Sulfur-Diesel (ULSD) costs more to make than the previous 500 PPM 'Low Sulfur' diesel fuel. Various sources claim different extra costs, but it is about $0.05/gal more costly tomake than the old 500 PPM stuff leaving the refinery. The problem is equipment needed to make this USLD is very expensive to build, and not enough capacity is available yet. Further complicating the situation is there are no other products with lower sulfur content made. Even unleaded gasoline may have 500 PPM of sulfur. A 0.5% contamination with 'jet fuel" -which has as much as 3,000 PPM will spoil a batch of ULSD, making it suitable only for home heating oil or off road diesel. Starting January, even off road diesel must meet much more stringent sulfur levels also.

Shipping ULSD is MUCH more costly than previous diesel because of this contamination issue. The vast majority of petroleum product is distributed from refineries to consumers through pipelines. These are 'multi-product pipelines, who try to schedule and sequence the various product 'batches' such that the inevitable mixing at the interfaces between batches can be utilized -say 40% in the leading product, 60% in the following product. Pipelines do not move a batch directly from a refinery to final destination terminal from which wholesale tank trucks are loaded. There are numerous 'intersections' of pipelines (analogous to highways) and tank farm terminals at these intersections and along the pipeline system. A product batch may be moved by pipeline and into and out of terminals as many a 10 times as it travels from say Houston to New York City. At each terminal, the interface for the ULSD must be totally downgraded. This means 10-20% of the initial batch may end up as fuel oil or jet fuel.

Obviously companies try to minimize this downgrade cost by working smarter.

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You make a good point David , but I wonder what % tax makes up the diesel price at the pump , given we also pay RUC on diesel , which makes it even dearer

LOL, so the Americans are planning on selling down their strategic oil reserves ?

Don't they know there is an oil glut and this will only make it worse

Typical of market herd mentality, just when the market bottoms out , then everyone rushes for the door

Was in Sydney last week and 91 Octane was as low as $1.17/litre. Equating for NZ extra GST (5%) this is NZD1.32 @ 0.93 ROE. Effectively we have $0.60/litre extra taxes/mark up than Sydney.
But hey, we want to be GREEN do we not? So stop your moaning, the govt & petrol companies are helping the planet in NZ:).

Its time for a good investigative journo to do two things ,
1) look at the price we pay by international standards, adjusting for local taxation , and
2) look at a breakdown of what makes up the price of diesel and petrol ( I doubt taxes are as bad as we think ) Fuel taxes in the UK are horrific

I suspect the local market is making almost super profits at the retail end

Farm diesel in the UK is just over 30p a litre, but it's sulfur content could be higher, so it's hard to work out. Cars in the are very economical, our diesel in the UK is cheaper to run than our diesel here which has a RUC of around $30 a tank. The UK had a graduated tax on cars, making very economical cars very cheap and hungry others very expensive , that is being changed and all cars will pay a similar amount.
The Landrover Defender is stopping production due to safety standard requirements and the cost of meeting emission standards.

Thanks for the info Andrewj , it seems diesel is quite a bit cheaper on the continent too , and even though David Chaston was quick to point out my error , I still think we are paying too much , and fuel companies pricing is just too similar for comfort .

We need to recognise that a litre of Diesel is just another commodity like a 500 g tin of baked beans ( its not strategic like enriched uranium or something ).

Its price should reflect the market reality .

Ultimately , the fuel companies will have to see the error of their ways . The market will prevail and the price will drop to a clearing price for the glut............. and it cannot come too soon.