Seasonal RBOB traders beware! As I wrote yesterday before the wildly bearish Energy Information Administration supply report, "Seasonal traders have been warned that this market is out of whack so do not be surprised to see RBOB fall a lot further.” And boy did it! The Energy Information Administration rocked the market by reporting a surge in oil supplies and rocking refinery runs. U.S. crude oil stocks climbed by a higher-than-expected 2.7M barrels, which according to Dow Jones, is the highest end-March level since 1931. Refinery runs also popped to 86.3%, a six-year high for this time of year and as I wrote yesterday, "Strong refining runs and an abundance of crude is making gasoline the weakest of the petroleum sector. The pain that we experienced during the historic run up in February probably is the reason that gas is falling today. Early forced maintenance, weak demand and an abundance of crude should mean that we will be in much better shape as we head into this summer driving season.”
Today that bearish momentum should continue as aggressive policy action by Japan is sending the dollar soaring, which should put downward pressure on crude as our dollar purchasing power improves. Japan is going all in on monetary policy printing yen without apologies doubling its money supply trying to shock its economy out of deflation until the whole thing comes crashing down or inflation exceeds 2%. The Bank of Japan is following through on Prime Minister Shinzo Abe promise to try to shock the economy by trying to print its way to prosperity. Now it will be up to the European Central Bank to see if they want to move to keep in line with the printing happy Japanese as they face a bleak employment picture across the Eurozone.
Natural gas is pulling back ahead of today's report but is still getting a lot of attention. In today's Wall Street Journal "Ahead of the Tape” column by Spencer Jakab, he writes "Natural gas market tries a balancing act.” He reports, "We have zero percent interest in North American natural-gas growth," said Mark Papa, the chief executive of EOG Resources Inc., EOG -2.29% at a recent industry conference. A few years ago, that would have been akin to managers of General Motors Co. saying they didn't feel like designing new cars. EOG is one of the most prolific hydrocarbon producers in North America and had 88% of its continental net proved reserves in natural gas in 2006. That is now 41% and falling fast. The culprit is an epic glut of gas brought about by new drilling techniques. At one point last year, the energy in a cubic foot of natural gas was trading at the equivalent of a little over $10 a barrel of oil. At the same time, underground storage caverns held record amounts of gas and were in danger of forcing producers to close down wells.
“Officially the last week of the "withdrawal season," when heating demand leads inventories to be run down, there was 2.47 trillion cubic feet in storage a year ago, the most ever for that date. Thursday's figure will be high but less problematic, at about 1.69 trillion. That is partially as a result of a much colder winter than a year ago, but also because producers curtailed unprofitable drilling. When gas is co-produced with oil-like liquids that fetch high prices, producers often don't care about its price. And many new basins will continue to produce plenty of gas for years even after a retreat in drilling activity. Nevertheless, supply appears to be stabilizing even as various end-users from utilities to chemical makers have pounced on cheap U.S. gas. Spot prices are now double their trough from a year ago, though still just a third of their all-time high hit in 2005. Still too low to lure the likes of EOG's Mr. Papa back and not high enough to scare away users, today's prices suggest that gas inventories should continue to normalize.” A must read in today's Journal!