Oil boosted despite bearish inventory report

Beware of 2011.

Could the Mayan's have gotten it all wrong and it's really beware of 2011?! Floods, drought, frost and soaring global demand caused a drawdown in grain inventories led by corn that fell to a dangerously low forward demand cover to a mere 40 days. The report made it clear that we are going to have to plant more corn but if we do, because of the lack of acres, it will come at the expense of some other crop. The USDA said that the U.S. will produce a record amount of corn based ethanol which will raise the food vs. fuel debate and the fear of the loss of acres for other crops caused reverberations across the farm commodity spectrum.

Cattle and hog prices soared to all time highs dragging up milk and cheese prices with them. Soybeans got a boost from the report and wheat, while the winter seeding came in higher than expected, the crop in Australia was obviously downgraded as the flood waters rage.

For oil it was another reason to embrace the long side of the market, despite what you might consider some bearish product inventory numbers. The macro tone was set by the Portuguese bond auction that went better than expected and a sense that some way, some how if Portugal needs a bailout they are going to get one.

The TAPS began running (the Trans Alaska Pipeline not the Ghost Hunting Atlantic Paranormal Society) at reduced rates but the uncertainty as to when things will be back to normal kept the bulls milking this thing for all that it is worth.

Based on the Energy Information Agency data, the problem is a regional one. The EIA reported that U.S. commercial crude oil inventories fell by 2.2 million barrels from the previous week but are still well above the five-year average. At 333.1 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. In PADD five the West Coast most impacted by the pipeline problem, crude supply actually increased into the lower part of the average range for this time of year. The loss of oil should knock West Coast supply to below average keeping the coast very tight. Yet product supply is ample across the nation.

The EIA reported that total motor gasoline inventories increased by 5.1 million barrels last week and are above the upper limit of the average range. Distillate fuel inventories increased by 2.7 million barrels and are above the upper limit of the average range for this time of year. And despite those nasty East Coast storms, heating oil supplies are ample. They are on the higher end of the average range and are above average nationwide.

Remember back in the late nineties and early at the turn of the century when oil companies were merging like crazy? Everyone was up in arms worried about the lack of competition. Well look at how the world has changed. Steve Gelsi at MarketWatch reported that Marathon Oil Corp. shares rallied 12% to $45.30 in pre-market trades after the company said it would spin off its sizeable refinery business into the fifth-largest U.S. maker of gasoline and other fuels in order to focus on oil and gas exploration.

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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