Oil gains on short covering, Chinese inflation, Midwest flooding

The Nat Gas market was not overly impacted by the outcome of the EIA Short Term Energy Outlook yesterday even now that the weather has become less of a factor on Nat Gas prices and the shoulder season is finally in full swing. The market is looking for guidance for its next move. I am still expecting the Nat Gas market to test the $4/mmbtu technical support level before making any major run back to the upside. The latest weather forecast out of NOAA is still a neutral of Nat Gas prices.

Thursday the EIA will release their latest Nat Gas injection report. I am expecting:

  • A net injection into inventory of 95 BCF
  • Versus an injection last year of 93 BCF
  • ·an injection of 90 BCF for the five-year average for the same week.

Overall I am expecting this week’s Nat Gas inventory report to be mostly neutral.

The EIA released the Short Term Energy Outlook yesterday. It was a neutral for the market in that they did lower their forecast for oil consumption for 2011, but by only about 100,000 barrels while increasing their forecast for 2012. Following are the main highlights for both oil and Nat Gas. The Nat Gas consumption forecast is projected to increase by 0.5% for 2011...again another neutral.

Crude Oil and Liquid Fuels Overview. EIA projects that total world oil consumption will grow by 1.4 million barrels per day (bbl/d) in 2011, which is about 0.1 million bbl/d lower than last month's Outlook, and 1.6 million bbl/d in 2012, slightly higher than forecast last month. Supply from non‐OPEC countries increases by an average of about 0.6 million bbl/d annually through 2012, which is about 0.2 million bbl/d higher than in last month's Outlook. OECD inventory reports for the first quarter 2011 have come in higher than EIA projected in last month's Outlook. Consequently, while EIA still expects the market will rely on both a drawdown of inventories and increases in the production of crude oil and non‐crude liquids in OPEC member countries to meet projected demand growth, the forecast for OPEC crude oil and liquid fuels production has been lowered from last month's Outlook by about 0.14 million bbl/d in 2011 and 0.5 million bbl/d in 2012.

Among the major uncertainties that could push oil prices above or below our current forecast are: Continued unrest in producing countries and its potential impact on supply; decisions by key OPEC-member countries regarding their production in response to the global increase in oil demand; the rate of economic growth, both domestically and globally; fiscal issues facing national and sub‐national governments; and China's efforts to address concerns regarding its growth and inflation rates.

Global Crude Oil and Liquid Fuels Consumption. World crude oil and liquid fuels consumption grew to 86.7 million bbl/d in 2010, surpassing the previous record of 86.3 million bbl/d set in 2007. EIA expects that world liquid fuels consumption will grow by 1.4 million bbl/d in 2011, followed by 1.6 million bbl/d growth in 2012, resulting in total world consumption of 89.7 million bbl/d in 2012. Countries outside the Organization for Economic Cooperation and Development (OECD) will make up almost all of the growth in consumption over the next two years, with the largest increases coming from China, Brazil, and the Middle East. EIA expects that, among the OECD nations, only the United States and Canada will show growth in oil consumption over the next two years, offsetting declines in OECD Europe and Japan.

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