Energy report: Is Santa Claus rally real

Is this Santa for real?

Oil prices get swept up in a Santa Claus rally as light volume a strong stock-market as well as a surprise drawdown in inventory gives the illusion of strong demand. Ho, Ho, Ho! Yet we may find out that yes, Virginia, indeed this Santa rally, despite my better judgment, may be real if oil closes above $79 a barrel.

Last week the market got a bullish boost on a surprise draw down in oil supply when the Energy Information Agency, an arm of the Department of Energy, reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.9 million barrels from the previous week. That caught the market by surprise because we also saw a drawdown in the supply of distillates to the tune of 3.1 million barrels. Don’t try to reason that supply is way above normal or that most likely the draws are skewered due to bad weather conditions impacting imports because none of these justifications seem to matter. You just have to believe. You really will have to believe if oil closes above $79 a barrel.

Now some think the rally is for real because of the early blast of winter. Despite the worries over global warming, it is cold weather that is inspiring demand. In other words even though supplies are above the five-year average, weather may be colder this winter than the five-year average. The EIA on demand said that over last four weeks, total products supplied by refiners came in at an average 18.9 million barrels per day which was down by 1.1% compared to last year. For gasoline, over the last four weeks demand averaged 9.0 million barrels per day, up by 0.8% from the same period last year. Distillate fuel demand has averaged 3.7 million barrels per day over the last four weeks, down by 3.9% from the same period last year despite the fact that it was colder.

So if demand is not that much stronger then we have to look at imports. The EIA says that U.S. crude oil imports averaged 7.7 million barrels per day last week, down 65 thousand barrels per day from the previous week. That is the second big drop in a row and once again in the Gulf Coast. Over the last four weeks crude oil imports have averaged 8.0 million barrels per day, 1.6 million barrels per day below the same four-week period last year. It kind of makes you wonder why the market can’t see through the numbers.

Iran is cracking up with another crackdown on political protestors, killing at least 10 of its own citizens. In the meantime, they have troops digging in on the Iraqi border.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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