Oil bearish despite drop in U.S. supply

Can the global commodity markets shake off the threats of Chinese rate hikes? Well today they are going to try. Still, yesterday the oil markets ignored a very bullish oil inventory report after Chinese Premier Wen Jiabao said that he and the state council were drafting measure to address inflation. This led to the belief that interest rates in China may go up dramatically and curtail that oh so precious Chinese oil demand...

Not even a massive drop in US oil supply was enough to deter the market from going lower. The EIA reported that U.S. commercial crude oil inventories decreased by a whopping 7.3 million barrels from the previous week. At 357.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.7 million barrels last week and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.1 million barrels and are above the upper boundary of the average range for this time of year.

Oil Exports, low imports and refinery maintenance are the reason for the draws. The strikes in France are still taking a toll on our supply. According to Bloomberg News, China International United Petroleum & Chemical Co., the nation's largest oil trader, plans to boost diesel imports for a second month in December to ease a domestic shortage of the transport fuel. China International, or Unipec, plans to import 120,000 tons for December delivery, compared with 80,000 tons in November, according to an official with knowledge of the transactions, who declined to be identified because of company policy.

China Petroleum & Chemical Corp. and PetroChina Co., the nation's two largest oil refiners, are maximizing diesel production in a bid to ease domestic shortages in the southern and eastern parts of the nation caused by factories using the fuel to power their generators. Unipec, the trading unit of China Petroleum, is also exporting less diesel amid the shortages. November shipments may be as low as 10,000 tons, the official said. Exports were 90,000 tons in October and 120,000 tons in September.

Of course now some wonder if the Chinese will act fast enough and despite modest efforts may come up with a plan that is too little too late. Inflation in China is on fire and they better use a hose instead of a squirt gun if they want to put the fire out. The other reason that commodities are going back up is it looks like Ireland is going to accept an EU or IMF bailout. There is nothing more bearish for oil than a debt crisis and nothing more bullish than a bailout. Oil tanked on the Dubai crisis and rallied on the bailout. We hit the low for the year on oil on the Greece Debt crisis and came back up on the bailout. Now it's Irelands turn. When Irish Bonds are smiling sure it will keep the bears away!

Us Oil Demand is still not great. The EIA says that total products supplied over the last four-week period have averaged 19.3 million barrels per day, up by 3.7 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.1 million barrels per day, up by 1.8 percent from the same period last year. Distillate fuel demand has averaged 4.1 million barrels per day over the last four weeks, up by 13.9 percent from the same period last year. Jet fuel demand is 1.5 percent higher over the last four weeks compared to the same four-week period last year.

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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