Can Germany Save the Oil Market?
Germany may have kept the Eurozone out of a technical recession but is their growth going to be enough to stop oil’s gritty abatement? The country whose basic economic principles are being abandoned by France and Greece saw its economy blow away expectations showing a first quarter growth rate of 1.2%, much higher than the expected 0.1%. This strength was the first piece of good news out of Europe since the elections in France and Greece threw the region into turmoil sending commodities crashing and the safe haven dollar soaring.
Gold has been hammered by that, as well as fears that a Greek default could force Greece to sell gold or have it confiscated by creditors that would sell the gold to get back the cash that Greece owes them. Greece owns an estimated 100 to 120 tons of gold reserves which run the risk of liquidation if Greece indeed drops out. Germany on the other hand, has about 3,400 tons of gold making them the world's second largest holders of gold after the United States.
Oil also has to be convinced that Germany’s sudden economic recovery will be sustainable in a world where Greece and France seem to want to move towards economic self-destruction. The balance between growth and austerity is tough when you have already run up your debt just about as high as you can and have a system that rewards mediocrity and discourages innovation and self-reliance.
On top of that oil has to deal with supply that is at the highest level since the 1990s and probably will see another increase this week. Of course tomorrow may be the beginning of a game changer as the reversal of the Seaway Pipeline will be complete and oil will begin to flow. Oil that is backed up in Oklahoma will find its way down to the Gulf of Mexico and open up the possibility of more U.S. exports and a possible reduction in the Brent/WTI spread. Bloomberg News reported that Products Partners LP and Enbridge Inc. may boost capacity on the 150,000-barrel-a-day Seaway pipeline earlier than anticipated, according to Genscape Inc., an energy information service. It seems that work at pumping stations in Oakman and Colbert, Oklahoma, was observed May 10 during a flyover by the company Genscape.
The pump stations aren’t necessarily needed to start up the line, which Enterprise has said will begin shipments May 17, according to Genscape. “There’s extensive work on a couple of pumping station that are closest to Cushing,” said Zein. “It is likely that the work is related to expanding the flow on Seaway beyond 150,000 barrels per day.” Where there is smoke there may be fire.
More oil may also help continue to pressure product prices. Gas makes more sense to refiners when they can get their hands on more cheap crude. Because the Gulf Coast relies on imports, oil will be priced at a discount to Brent. Reuters News reported last week that two 550,000 barrel cargoes of U.S. sweet domestic crude were on offer priced at a 50¢ per barrel discount to the price of global benchmark Brent crude, trade sources told Reuters on Friday. This is the first crude seen on offer to come off the reversed Seaway pipeline, which will start carrying crude from the oil hub of Cushing, Oklahoma into the Houston area next week.
The crude was for delivery at Jones Creek, the terminus of Seaway on the Gulf Coast, or at Texas City or "some other Houston area discharge port," via pipeline links, sources said. Seaway branches to Texas City. The price is 50¢ under Brent.