Brent/WTI oil spread coming back in line

It seems that market are also reacting to the spread sending light sweet crude to Europe as opposed to the formally oversupplied US. Gas and Oil Daily says, "Oil stockpiles in Cushing dropped 760,000 barrels to 28.1 million. The Energy Department said last week that Cushing inventories, including floating and fixed tanks, totaled 31.1 million barrels as of October 14th, down 26% from a peak of 41.9 million on April 8." Bloomberg News says that crude oil inventories in Cushing, Okla. dropped 2.6 percent on Oct. 21 from Oct. 18, according to data compiled by DigitalGlobe Inc. They say that stockpiles held in floating-roof tanks at the hub fell 760,000 barrels to 28.1 million, satellite images taken by the Longmont, Colorado-based company show. In other words, the market forces are starting to correct the anomaly between the spread as oil is seeking higher prices. That is reducing Cushing supply and more than likely increasing European supply.

What is also helping is that we are seeing an increase in Nigerian exports as well. Nigeria also has the very desirable light sweet grade of crude oil. Dow Jones says that Nigeria will export 7,950,000-barrel cargos of Bonny Light in December, one more cargo than in November. They report a total of 214,516 barrels a day of QuaIboe crude will be available in December, compared with 157,000 barrels a day in November, the program shows. This should put more pressure on The Dead Spread as well. It also put the WTI market in backwardation for the first time since the financial crisis began. It seems that the market is worried that with all the oil ending up in Europe, supplies may tighten in the US. It is also showing a vote of confidence in the US economic growth outlook or at least a more pessimistic outlook for Europe.

Also with oil on fire yesterday William Dudley of the Fed, fed into the flames talking about QE3D! QE is bullish for oil and with the Dead Spread out of whack, we could see WTI try to attract supply. While WTI flies, gas prices were mute as the Brent crude should help US imports of products. Mr. Dudley is sending a signal to the market that QE is back in play and most likely will be in the form of printing money to buy back mortgage backed securities. Very bullish for WTI oil!

The Energy Information Agency has some good news I suppose. They said that the national average retail price of regular gasoline is down 1.4c to $3.462 a gallon. Yahoo! Now not that I want to ruin that good feeling you had but they also want to remind you that prices are still 64.5c a gallon, or 22.9%, higher than they were a year ago.

Want some news that might warm your heart? Reuters News points out that the average of the first 12 months of New York Mercantile Exchange natural gas futures contracts slid to its lowest in nine years on Monday as growing supplies and moderate weather weighed on the complex. The 12-month futures fell 2.3 cents to settle at $3.923 per million British Thermal Units, the lowest settle since Nov. 15, 2002, when the average closed at $3.926, Reuters data showed. Despite record heat this summer that drove NYMEX front-month gas to its 2011 peak near $5, record-high gas production, primarily from shale, has been the main factor pressuring price expectations.

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.

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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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