Oil spreads impacted by European speculative hoarding

Irrational QE3 Expectations.

Fed Chief Ben Bernanke once again played traders like a fiddle. When the Fed fund futures started raising expectations that rates would increase in 2013, it seemed Ben was a bit perturbed. He soon sent a message that the data was not as good as it seems and bond vigilantes better beware. The Fed was ready and willing to employ QE3 and that seemed to be the message the Fed wanted to send or at the very least he wanted traders to stop messing with the short end of the yield curve.

Of course, after yesterday’s Fed minutes we now realize that Ben Bernanke was really just trying to slow the speculative fervor. No, QE3 is not right around the corner, but don't try to force his hand by raising rate increase expectations until Ben feels ready. It's his party and he will print if he wants to. So, the message to traders is that do not try to force his hand. He wants to be the leader and the traders had better follow. 

Darn those speculators! No I am not talking about traders. I am talking about those counties in Europe and Asia that continue to hoard supply ahead of what they "speculate" will be a disruption of supply. Hoarding in Europe and North Sea problems drove the Brent/WTI spread to a six month high. The latest evidence of European oil hoarding comes from the French as reported by Bloomberg News. It seems that BP Plc, Europe's second largest oil company, increased purchases of diesel for delivery into France more than 10-fold last month before the country raises the amount it requires companies to hold in its Strategic Reserves.

Dow Jones Reported that we have seen the fastest expansion in oil cargoes since 2004, exceeding demand and filling up storage tanks from Egypt to Japan, creating a glut that threatens to reverse the biggest gain in shipping rates in five years. According to Dow Jones, tankers will be carrying 488.8 million barrels by April 14, 3.9% more than the week earlier, estimates Oil Movements, which has tracked cargoes for 25 years. Rates for very large crude carriers, each holding 2 million barrels, will drop 58% to average $19,750 a day, the median of six analysts’ forecasts compiled by Bloomberg shows. Shares of Hamilton, Bermuda-based Frontline Ltd. (FRO), the largest operator, will fall 46% in 12 months, the average of 19 predictions shows.

Shipments accelerated as buyers sought to expand reserves on mounting concern that Middle East supply will be disrupted by conflict over Iran's nuclear program. Rising stockpiles are coming at a time of slowing growth in China and a contraction in Europe, which together account for about 33% of demand. The global market is getting as much as 2 million barrels a day more than it needs, Saudi Arabian Oil Minister Ali al-Naimi said March 20.

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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