Oil falls as Fed discusses QE exit

FED X-IT.

That's all fine, skeptics might say, but can it last? A look at Houston, Texas, the area of the Gulf Coast receiving the vast majority of the new inland crude oil supplies, suggests there is plenty of scope yet to absorb more light crude. Foreign crude imports into Houston fell by 472,000 barrels per day in February, the most recent data currently available, when compared with the fourth quarter of 2012. But even so this meant that Houston-area refineries were still buying 910,000 bpd of foreign oil that month. With a weighted average API gravity of 29.4 degrees, this oil was, in aggregate, a medium crude. Thus there is considerable room still for medium crude in the Houston area to be displaced by blends of domestic light and foreign heavy oil. Drilling down more deeply into the data, the picture is a bit less rosy. It seems unlikely Canadian or Mexican heavy crude will be displaced by domestic light oil so those barrels should be excluded.

And it makes sense to also exclude Saudi Arabian crude oil given the Kingdom's apparent willingness to sacrifice some revenue to maintain market share in the United States for diplomatic purposes. That reduces the volume of foreign oil that will be relatively easy for domestic producers to displace from the Houston region to approximately 449,000 bpd in February, down from 863,000 bpd in the fourth quarter of 2012.”

Dan Murtaugh of Bloomberg writes that "U.S. oil exports are poised to reach the highest level in 28 years as deliveries to Canada more than triple, helping bring down the price of the global benchmark Brent crude relative to U.S. grades. The shipments will rise to at least 200,000 barrels a day by the end of the year, according to Ed Morse, head of global commodities research at Citigroup Global Markets Inc. Exports were 59,600 in 2012 and haven't averaged more than 200,000 since 1985. The U.S. restricts companies from sending American crude abroad, with Canada an exception. The premium for Brent, used to price European and West African crude, over U.S. West Texas Intermediate narrowed to less than $8 a barrel this week from $25.53 in November. The export increase allows refiners in eastern Canada including Valero Energy Corp. and Irving Oil Corp. to replace cargoes from overseas with less-expensive U.S. oil, benefiting from the shale-drilling boom that's pushed domestic output to the highest level since 1992.”

Yet natural gas seemed to move inversely in a small way adding more evidence that natural gas may act as a safe haven to oil. Dow Jones reports that  Shanghai copper futures settle 0.7% higher on modestly encouraging China economic data. Value-added industrial output in China rises 9.3% in April on year, accelerating from an 8.9% on-year increase in March, government data shows Monday. Retail sales in China rise 12.8% on earlier, also accelerating slightly from a 12.6% increase in March. The benchmark September copper contract gains CNY360 to settle at CNY53,360/ton; aluminum, zinc and lead settle mixed.

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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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