Oil finds support in swath of fundamental factors

A World of Woes and Oil Goes!

If it isn’t one thing driving oil higher, then it is another. Oil prices are getting support from weather woes, refinery fires, pipeline sabotage and weak global economic situations that are raising hopes of more global economic stimulus.

We start with bad news is good news. German manufacturing orders fell in June and a report that Mario Monti gave an ultimatum to Angela Markel is getting the market geared up on the belief that the European Union is getting ready to embark on a massive bond buying blitz. Also a story in the Wall Street Journal is suggesting that the Fed may be getting ready to do the same thing. The Wall Street Journal reported that Eric Rosengren, president of the Federal Reserve Bank of Boston, called on the Fed to launch an aggressive, open-ended bond buying program that the central bank would continue until economic growth picks up and unemployment starts falling again. His call came in an interview with The Wall Street Journal, the first since the central bank signaled last week that it was leaning strongly toward taking new measures to support economic growth.

Oil traders know that bond buying and bailouts are bullish and once again the market is getting support with these hopes. But oil has to look at the old fusion bullish risks as well. Oil got a boost on a false report that the Syrian President was killed or as some said, wishful thinking. There was a pipeline explosion as well. The AP reported that, “An explosion in Turkey has forced authorities to shut down pipeline carrying oil from Iraq to world markets, an official said Monday, in the second such incident in two weeks. Local media reports said Kurdish rebels had caused the blast. The explosion occurred late Sunday near the southeastern town of Midyat and damaged the pipeline running from Kirkuk, in northern Iraq, to the Turkish Mediterranean port at Ceyhan, said an official at Turkey's pipeline company, BOTAS. A second line that runs parallel was not harmed, but has also been shut down temporarily as a precaution, the official said. The two pipelines carry about 25 million tons of crude oil a year."

The official said authorities suspect the blast was the result of sabotage, but would not elaborate. He only spoke on condition of anonymity because of government rules that bar civil servants from speaking to reporters.”

Oil is also getting a boost from tropical storm Ernesto that at the very least will slow imports of oil into the Gulf of Mexico or shut down Mexico’s offshore production. But what is more, the Atlantic is very active with storms popping up all over. We have seen tropical depression Florence lose energy as it looked like it was heading up the east Coast. We have 3 other storms that traders are watching and oil tankers will be slowed as they try to maneuver around these storms. That comes as most traders are looking for a drawdown in crude supply. I don’t think that will happen this week but watch out next week. Remember that when it comes to tropical depressions, they do not have to necessarily do damage to have an impact on supply and price.

Speaking of tropical depression how about gas price depression. While word of the restart of the Enbridge Pipeline caused wholesale gas prices to fall by more than 20 cents, a refinery fire in California could share our gas pain with the West Coast. I guess it isn’t just Chicago with bad gas problems. Dow Jones reports that, "firefighters have contained a blaze at Chevron Corp.'s (CVX) Richmond refinery in California, but the fire, which broke out Monday, is still burning. The damage, and the likely outage of some or all of the 245,000-barrel-a-day facility, could push gasoline prices higher given that it is the largest refinery in the San Francisco Bay Area, accounting for nearly 10% of the refining capacity in the U.S. West Coast region.”

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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