Oil looking for reason to rally before OPEC meets

Looking for Reasons To Rally

 Oil prices overnight are up a touch led by an increase in Brent crude prices. Increasing geopolitical risk as the EU has dropped its opposition to arming Syrian rebels as well as some concerns about Nigerian exports are giving the market an early lead.

Yet despite the dollar defying strength the market will need help to continue its early upward momentum. We have survived the start of the summer driving season with prices falling modestly and signs that demand was not as strong as it could have been due to bad weather in the Midwest.  AAA predicted that 31.2 million people planned to travel this year more than 50 miles from home. Yet with rain and cold many probably stayed a bit closer to home. The products could see some extra volatility as ultra-low sulfur heating oil and unleaded gas options go off the board today.

OPEC meets this week and is still trying to grasp the impact of the U.S. shale gas revolution.  The Wall Street Journal's take "The American energy boom is deepening splits within the Organization of the Petroleum Exporting Countries, threatening to drive a wedge between African and Arab members as OPEC grapples with a revolution in the global oil trade. OPEC members gathering on Friday in Vienna will confront a disagreement over the impact of rising U.S. shale-oil production, with the most vulnerable countries arguing that the group should prepare for production cuts to prop up prices if they fall any lower."

This week we should see crude supplies fall by 1 million barrels and gas should fall by 3 and distillates by 2 with refining runs remaining steady.  Natural gas is still staying strong. The Economist wrote about natural gas as the "Fuel of the Future". They Write …."America's unexpected, and most welcome, bonanza of natural gas from its vast shale deposits seems to be doing as much to reduce pollution as many of the efforts introduced over the years to restrict emissions from vehicles, power stations and other sources. The biggest breakthrough the energy industry has seen in decades, hydraulic fracturing ("fracking") combined with horizontal drilling, has released unprecedented quantities of gas from this shale. As a consequence, the spot price of domestically produced natural gas has tumbled from a high of over $12 per million British Thermal Units in 2008 to less than $2 in 2012, before settling at around $4 today (a million BTUs is roughly equivalent to a gigajoule of energy)…

“Which fuel actually will power the car of the future is up for grabs. A century ago, lead-acid batteries and even steam engines vied with diesel and petrol as serious alternatives in the emerging automobile industry. Now lithium-ion batteries, hydrogen-powered fuel cells and methanol, as well as methane, are queuing up to take on the older fossil-fuel contenders. Two things are clear, though: there is a lot of natural gas out there; and it is extremely cheap. In both electricity generation and road transport, it will be a hard act to beat.”

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.

 

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