Oil rallies after fiscal cliff averted, for now

Somewhere Beyond the Cliff

Oil prices had the shackles removed and spiked higher after the Republicans caved and agree to a bill that will raise taxes on families that earn over $450,000 but does nothing to reduce real spending. Of course for oil bulls any deal is better than no deal. The fact that the rest of the Bush tax cuts are still in place gives us hope that while the tax increases will hurt growth, it not as bad as it could have been.

The debate is far from over. The passage of this bill just kicked that dang proverbial can down the road again because the across the board government spending cuts will have a deadline for completion two months from now. Yet in the meantime ignorance is bliss and this deal should propel oil to the high end of my predicted range near $96 a barrel.

That is despite the fact that crude oil supply in Cushing, Oklahoma is near record highs. The increase of oil flow through the Seaway Pipeline and more transportation moving oil should help support WTI versus Brent that had blown out to ridiculous levels. In the New Year more infrastructures will be built to alleviate the glut in Cushing and the WTI will be on a path to restoring its reputation as the world’s benchmark and why not! The US is going to be the world’s largest oil producer in the world’s largest economy and soon to be a major exporter. The world is already looking much different as we head into the New Year.

The Sun-Times reports that the price of unleaded regular in the Chicago area averaged $3.91 a gallon in 2012, 12 cents a gallon higher than the previous record of $3.79 a gallon set in 2011, according to AAA. For three of the past five years, the average has hit a record. In 2008, the price averaged what was then a record high of $3.45 a gallon, the motor club said.

RBOB futures though look strong as traders offset long heat-short Rbob on warmer forecast weather.

Where are of those natural gas bulls now? It appears the European weather models are forecasting a warm up. Supplies should soar to a record.

The budget deal also included a two-year extension, to Dec. 31, 2013, of the $1/gal bio-diesel and renewable diesel tax credit, and a one-year extension, to Dec. 31, 2013, of the $1.01/gal cellulosic ethanol tax credit. The bio-diesel tax credit expired at the end of 2011. It is being reported that the language is a retroactive tax credit, extending the provision from the end of 2011 through the end of 2013.

Bloomberg News reported that Russia’s crude oil and condensate output in 2012 climbed 1.1 percent from a year ago to a post-Soviet record as companies maximized supply to take advantage of an increase in prices. Russia, the world’s biggest energy producer, pumped 10.38 million barrels a day last year, up from 10.27 million in the previous year, according to data from the Energy Ministry’s CDU- TEK unit. Daily oil output was 10.485 million barrels in December, little changed compared with revised data from November and up 1.6 percent from the same period in 2011, the agency said in an e-mail today. Russia’s government is reviewing the export duty structure, with plans to propose incentives for offshore and unconventional oil production by the end of the first quarter. President Vladimir Putin has set a goal of maintaining output at more than 10 million barrels a day. The country pumped above that level in September 2009 for the first time since the collapse of the Soviet Union. Oil exports declined to 5.14 million barrels a day last month, a 0.3 percent decrease from November and 1.8 percent less than in December 2011.

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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