Oil bounces on improving macroeconomic data

Spring Ahead!

Oil prices — as I predicted — are trying to find their seasonal bottom. A bounce yesterday on strong retail sales and happy talk out of Europe, seemed to give the complex a technical bounce. While not out of the woods yet, the crude bulls are trying to build confidence. We also saw Brent crude start to break against the WTI as production and pipelines and the talk of more OPEC production helped break the spread and give oil a boost. Now add to that a very supportive American Petroleum Institute report and it looks like oil is trying to spring ahead of the upcoming summer driving season.

Oil bounced from technical support cheered on by comments out of European Central Bank council member Jens Weidmann who said the euro exchange rate won't derail the region's economic recovery. On top of that, we saw a Redbook Retail sales improve in the first week of March up 2.7% above year ago levels and 0.6 percent over year ago levels.

The Brent looks weak compared to WTI. Bloomberg reports that daily exports of the 12 main grades of North Sea crude for loading in April will rise by 8% to the highest in 10 months, according to loading programs obtained by Bloomberg News. Shipments of Brent, Forties, Oseberg,Ekofisk, Statfjord, Gullfaks, Alvheim, Aasgard, DUC, Flotta, Grane and Troll blends will total 61.2 million barrels, or 2.04 million barrels a day, compared with a revised 1.9 million this month. That is the most since June. Loadings of Forties, the most abundant of the four grades that make up the benchmark Dated Brent, will rise by one cargo, or 9%, to 420,000 barrels a day next month. The 200,000 barrel-a-day Buzzard oil field, the largest contributor to the Forties stream, returned from maintenance 10 hours ahead of schedule on March 4, Patti Lewis, a Calgary-based spokeswoman for the platform's operator, Nexen Inc, said on March 5.

The API report was also supportive overnight as crude oil stocks surprisingly fell. The API reported that crude stocks fell by 1.4 million barrels as a drop of Gulf Coast supply showed slowing imports reflecting in part, foggy weather that slowed shipping traffic in Houston. Supply in Cushing, Oklahoma fell in a sign that oil is getting out of Cushing which also puts more pressure on the Brent crude/West Texas Intermediate.

Gasoline supply also fell harder than anticipated falling by 3.1 million barrels. Weak demand and the seasonal drawdown of winter-time supply continue.

Natural gas is hanging around in the front end of the curve and interest is building in the back end. The December 2015 actually closed over a penny. The Energy Information Administration moved to reflect growing demand, increasing demand expectations by 0.7% to 70.02 BCFD per day! Wow! Supply then will rise only by 0.7% to 69.6 BCFD less than the last report. The EIA also cut its 2013 world oil demand growth forecast by 40,000 barrels per day to 1.01 million bpd.  The oil demand growth estimate for 2014 was cut by 10,000 bpd to 1.40 million bpd.

 

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