Maybe that ground hog is something special after all. Oil futures fly after the ground hog saw his shadow and predicted six more weeks of winter. And by the way, I did not see my shadow and yes, I've heard that one before. Still oil joined the stock market in the biggest two day rebound in over three months. The sudden oil resurgence comes on the backs of some renewed economic optimism especially in the manufacturing sector but also because of some concerns about the disruption of supply.
RBOB gasoline lead the rally gaining even more support from refineries that are closing on purpose and some that are not. Oh sure, most of the move in oil seemed to be macro economically motivated but word that Valero Energy Corp shut a fluid catalytic cracker at its Quebec City refinery after a fire, sure helped gasoline lead the way. Bloomberg News said that the fire was reported at about 2 a.m. local time at pumps on the gasoline-making cat cracker, Bill Day, a company spokesman, said in an e-mail. No injuries were reported. The blaze was extinguished at 4:40 a.m. The 66,000-barrel-a-day cat cracker has been shut down and an estimate for the restart of the unit is pending a damage assessment, according to Day. The refinery has a capacity of 265,000 barrels a day, according to data compiled by Bloomberg.
Cold weather also helped the products because, as the ground hog accurately predicted, winter refuses to go away quietly. The U.S. Climate Prediction Center is forecasting below-normal temperatures from Texas to New England from Feb. 7 to Feb. 15. Matt Rogers at Commodity Weather Group, LLC is also predicting a stronger cold push for the middle of the nation next week.
On top of that, traders wanted to cover their positions ahead of the American Petroleum Institute oil inventory report. Some had fears that the shutting down of the Sabine ship channel may cut into supply. Well according to the API those fears were unfounded. The API reported that crude stocks increased much more than expected at 4.7 million barrels. The products are more nondescript with gas stocks falling by 1.2 million barrels and distillates falling by 1.0 million barrels. The API showed that crude imports were up by 322,000 barrels while product imports were down. If The Energy Information Agency, the arm of the Department of Energy, shows such a large build in their own report, that should slow the bullish momentum a bit, that is unless of course the stock market keeps soaring.
To the long term bears: I never said that the move to the $40 handle would be easy and to expect swings back along the way. I have been saying that oil is in a long term wavy down trend that will take some time to complete. We are going to expect some big snap backs and rebounds along the way. Yesterday I said that, “With oil back over $75 if we continue to see the stock market rally oil could make a run back towards $77.” That happened obviously very quickly and it should offer some good opportunities to put on your long term bearish stagiest. Where am I wrong? I would be wrong if oil closes back above $85. That would negate my long term bearish pattern. Still I think that a move above $85 is unlikely as the dollar seems to be finding some stability and despite the recent increasing demand hopes. The globe is still well supplied with oil.
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 firstname.lastname@example.org.