Oil attention on tight spare capacity

So much for the Bin Laden bounce. While the stock market rallied briefly on the news of Osama bin Laden's demise, the realization set in that bin Laden was less of a factor than in times past and the world had moved on beyond him. While the fear of retaliation may have played a part in the markets reversal of fortune, the truth is that the death of this mass murderer shows that he is nothing but a pathetic smudge on history. While terror is now a part of our everyday life, the markets have evolved to be prepared for the worst.

In the meantime, crude oil is focused on the threats that face the world today, like the war in Libya, the Arab spring, the three month low in the dollar. Traders realized that there is major threat to global supply as tensions in the Middle East may be heightened by the death of bin Laden and they are counting the dwindling barrels of spare production capacity.

World spare production capacity, which was near 6.0 million barrels, was cut by a third after Libya and now the International Energy Agency has raised its demand outlook by 3.0 million barrels a day by midsummer. This leaves us with thinnest margin for error since 2008.

In the meantime, gasoline prices continue to rise. The EIA reports that the national average for gasoline prices hit approximately $3.963 per gallon. Now with a slew of refinery outages and power outages it seems that the $4.00 a gallon area for gas in the USA is a foregone conclusion. What is scary is that we have not even seen the entire cost of crude get passed onto the consumers which will squeeze real gas stations serving on the front lines. That means that we may see big draws in gas and distillates once again!

The market may rally on products today as it will get prepared for what should be a bullish American Petroleum Institute report. Yet early on the fact that Australia keeps rates on hold is boosting the dollar and putting downside pressure on oil. Yet we should see a rebound later so get prepared for some more big swings.

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.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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