Energy report: Crude stays strong

Have it your way, have it your way.

The bulls have it their way yet beware because today is a brand new day. With bond yields rising, the Fed minutes talking about an exit strategy and the euro giving back most of its one day gains, the big question yesterday was why oil did not get crushed. If all of oil's strength was because of the Euro and the dollar then shouldn’t oil have fallen a lot harder?

Well obviously it is not all about the dollar and the euro and the problems with Europe. There is still supply and demand to consider and there is also geopolitics but ultimately we know the market's fate still resides in the hands of the world’s global central banks. Yet yesterday oil prices followed through on Tuesday’s technical breakout. The breakout was inspired by a sharp rebound in the euro and a suddenly sinking dollar. Yet as those markets reversed yesterday oil kept hanging in there. Oh sure, oil garnered some support from some strong corporate earnings and better than expected economic data but more than anything it seemed to go higher because there was not a lot of resistance to stop it. Oil is in a bit of clear air on the charts so the bulls do not need as much news to keep us higher and they had their way with it yet with the Energy Information Report looming and continuing dollar strength overnight, oil may have a harder time have it its own way.

Maybe it wasn’t that cold after all. Many analysts snow bound and cold had assumed that the snow would automatically lead to about a 1.5 million barrel draw in distillates because distillates include heating oil. But sometimes snow and cold is a relative thing as heating oil supply and distillate rose anyway. The American Petroleum Institute reported that distillate stocks actually increased by 1.4 million barrels last week and heating oil supplies surged by 1.4 million barrels. Is this a warning to natural gas traders as well? It seems that the expectations of drawdowns are on the high side as the weather was cold but not that cold. The API said that crude stocks were off by 63,000 barrels but mainly because runs were up a bit more than imports.

The API also reported that gas stocks were up 1.5 million barrels mainly because two or three states decided to stay home and not drive. In fact according to MasterCard, gas demand hit the lowest level since October 2008. Barbara Powell of Bloomberg News reported that U.S. gasoline demand last week plunged to the lowest level in 16 months as record winter snowstorms kept drivers off the roads from Texas to New England, MasterCard Inc. said. Motorists bought an average 8.84 million barrels of gasoline a day in the week ended Feb. 12. Consumption was the lowest since Oct. 10, 2008, when supplies were limited by two Gulf Coast hurricanes and the U.S. economy was spiraling into the worst recession since the 1930s.

The Central Atlantic region, which includes New York and Pennsylvania, “suffered the largest and most noticeable week-over-week decrease” in demand with a decline of 16%, Michael McNamara, vice president of research and analysis for MasterCard Advisors SpendingPulse said. Demand fell 2.5% from the prior week and has dropped 6.1% in two weeks. Demand for the past four weeks was 9.18 million barrels a day, up 0.4% from a year earlier. The national average pump price for regular gasoline fell 3¢ to $2.62 a gallon. Prices are 35% above a year earlier.

Why the sudden surge in the dollar! The Fed says we can thank China. The Fed said the dollar strength is tied to the fact that China raised reserve requirements on banks. Well no kidding, that was a major factor in the dollars resurgence.

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.

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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