Crude oil supply rising, prices fall

There Will Be Demand Destruction

Supplies swell and prices fell yet it is unclear whether or not this will be enough to break oil’s recent strength. Iran’s oil output plunged to a 20-year low as sanctions are staring to bite the arrogant and deficient regime. Tankers of Iranian oil are parked as Europe, Asia and even India have secured alternative supply. India has bowed to U.S. pressure to reduce Iranian imports. Iran, from an oil supply standpoint, is now inconsequential as buyers have secured other supply but from a geopolitical risk standpoint, is still the best reason why oil continues to hold these lofty levels. The best chance to break oil is to break the Iranian regime's desire to acquire nuclear weapons or perhaps some less than stimulating word from European Central Bank President Mario Draghi.

Even OPEC is worried about the resilience of oil as OPEC Secretary General Abdalla Salem el-Badri as reported by Dow Jones said, "We are trying to bring the price down. We are not happy" with prices at $110-$130. There will be destruction as far as demand is concerned. We want oil below $100 a barrel. El-Badri said OPEC production increased to 32 million barrels a day in March, two million barrels a day higher than the ceiling agreed to by the group in December so they still are cheating on production.

Energy Information Agency Petroleum Status report did put some more downward pressure on the market after reporting that crude oil supply at the all-important Cushing, Oklahoma delivery point hit an all-time high of 42.9 million barrels. The bounty of Canadian and shale crude in Oklahoma and the promise of soon to be reversed Seaway offset the concern over falling product supply. The EIA showed that overall crude oil inventories increased by 2.8 million barrels from the previous week. At 375.9 million barrels, U.S. crude oil inventories are in the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.0 million barrels last week and are in the middle of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.9 million barrels last week and are in the middle of the average range for this time of year. Propane/propylene inventories increased by 1.1 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 1.9 million barrels last week.

A small pop in refinery runs also gave hope that product supply should soon rebound.

Now the question for oil is whether or not the ECB will try to boost the sagging EU economy. Overnight EU producer price inflation eased in March as energy prices rose at the slowest pace in 31 months. The hope is whether that break in inflation will give ECB chief Mario Draghi enough cover to try to stimulate the economy, perhaps with an EU QE. The markets though do not seem to think that Draghi from a political belief standpoint would have the guts to run the printing presses.

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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