Oil bulls optimistic on data from China

At the moment, the financials are still supportive for higher oil prices which were also bolstered overnight by the latest purchasing managers index released in China, which showed manufacturing accelerating in China for the second month in a row…suggesting that the Chinese economy may be stabilizing after the government has curbed activity this year to manage the asset bubbles as well as to mitigate inflation exposure. This data suggests that China should see their oil consumption grow and thus help in slowly clearing up the global overhang in oil supply.

The tropical weather situation remains active with two weather patterns still in play. As shown in the following graphic the storm in the Caribbean Sea is still a tropical depression as it moves across Cuba. In addition a new weather pattern sitting in the eastern Atlantic emerged yesterday but is a low probability event or just a 10% chance of forming into a tropical cyclone over the next forty eight hours. Neither of these weather patterns are currently a threat to the US Gulf Coast.

Tropical Depression(TD) 16 is still projected to move northeast from its current location. TD 16 will move north across Cuba and then across southern Florida before emerging in the Atlantic and definitely out of harm’s way of the sweet spot of the oil and Nat Gas producing operations in the Gulf of Mexico. So once again, although it has been a very active tropical weather season, oil and Nat Gas operations continue to dodge bullets as it appears TD 16 will moves quickly out of harm’s way of the Gulf operations. As such the tropics continue to be an area to watch but not to react to or spend any trading capital on, as has been the optimum trading strategy throughout the entire tropical weather season so far.

Yesterday afternoon the API released a mixed inventory report showing a surprisingly larger than expected crude oil inventory decline of 2.5 million barrels along with a similar surprise decline in distillate stocks of 2.8 million barrels while gasoline stocks built a tad over 3 million barrels. The results of the API report are summarized in the following table along with my projections for this week’s inventory report and a comparison to last year as well as the five year average for the same week. So far the market has pretty much discounted the mostly bullish API report as oil prices are only marginally firmer across the board mostly driven by the financials and manufacturing data out of China. However, even though the API data is out of sync with the EIA data, yesterday’s API data does raise a caution flag as to a possible divergence from most of today’s industry expectations for the EIA report at 10:30 AM EST.

Projections

9/29/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

(2.5)

(0.1)

19.8

41.2

Gasoline

3.0

0.9

15.5

27.7

Distillate

(2.8)

1.1

4.9

31.9

Ref Change Level

-1.8%

0.1%

3.3%

3.2%

Utilization %

83.6%

87.9%

84.6%

84.7%

I am expecting a mixed report with a minor draw in crude oil and modest builds in both gasoline and distillate fuel. If the actual numbers are in sync with my projections for a crude oil draw of 100,000 barrels, it will be the second week out of three of declines. However, the declines have been minor and have not had any significant impact on the overhang that has persisted in the US (and elsewhere) throughout the entire economic recovery so far. As such, I would categorize crude oil as biased to the bearish side as the year over year surplus will still be around 20 million barrels while the overhang versus the five year average for the same week will have in fact widened modestly to 41.4 million barrels.

<< Page 2 of 3 >>
Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome