Oil pressured as supplies increase and demand falls

Inverse Universe

Crude oil is better supplied and demand growth is going to slow. Is there a better time to buy crude? Crude oil looks to break its three-week long losing streak as the doom and gloom over the fundamentals continue to roll in. The latest report about the supply and demand fundamentals comes from our friendly representatives from the International Energy Agency. The IEA lowered its 2012 oil demand growth forecast down to a tepid 700,000 barrel per day. The IEA joins OPEC and the Energy Information Administration that all say that supply is going up and demand is going down.

Yet at the same time, the International Energy Agency warned that things are not all warm and fuzzy in the global oil market. Despite a market that should stay well supplied, geo-political risks abound. They warn that last year's string of supply disruptions in Syria, Yemen, Sudan, the North Sea, Brazil and the Gulf of Mexico illustrated the possibility of a “perfect storm” of coincidental disruptions in many oil provinces. Even those realized disruptions, however, pale in comparison with the new threat of unrest and political turmoil spreading further at the heart of the Middle East producing region.

Yet it seems that oil has priced in a lot of the slowing demand fundamentals and is probably a lot closer to the low for the year than the high. Seasonally the market seems to bottom right now in the heart of shoulder season. Support should also come from our precarious distillate product situation. Those concerns were heightened after the release of the weekly Energy Information Administration report that showed that supplies are dangerously tight. As David Bird of Dow Jones writes, “US combined diesel and heating-oil inventories are at 12-year lows for this time of year nationwide and in the Northeast, the major consuming region of the latter, EIA data show. Nationwide supplies last week were 18% below the 5-year average, measured against current demand, at less than 32 days. In the Gulf Coast, which  supplies 60% of the heating oil used in the Northeast, stocks were at 4-year lows for the week." The figures come a day after the EIA forecast normal winter temperatures after record warmth a year earlier will push Northeast heating-oil bills up 20% to a record high.

At the same time oil traders may be wary of being short over the weekend because of tension between Turkey and Syria. The BBC reported that Syria has accused Turkey of lying over its claim that a Syria-bound plane forced to land in Ankara was carrying Russian-made defense equipment. Syria's foreign ministry challenged Turkish PM Recep Tayyip Erdogan, who made the claim, to show publicly what had been seized. Erdogan said the jet was intercepted because of suspicions that Russia was breaching an arms embargo on Syria. Russia also denied the aircraft had illegal cargo on board. It said the interception by Turkish military jets had put the lives of the passengers — including 17 Russian nationals — "in danger." Tensions were already high between Turkey and Syria, following the deaths of five Turkish civilians by shelling from across the border last week. Turkey has returned fire, and on Wednesday its top military commander warned Ankara would respond with greater force if the shelling continued.

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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