Oil supply glut continues amid refinery problems

Are they rooting against us?

After the big global rally after the pathetic ISM manufacturing number, we have to wonder whether the globe is rooting against us. Why else would markets cheer the fact that the Institute for Supply Management saw factory activity in May fall to 49.0 from 50.7 in April, short of expectations for 50.7 and the worst reading in four years? Well simply because that means the chance of Fed tapering off of bond purchases may not happen as quickly as some feared. That is good news for the rest of the globe that has benefited from the U.S. policy, or maybe it is because it just does not make them look as bad.

For oil though, despite the tipper taper rally parade the market still has to overcome the fact that supply in the U.S. is overwhelming. Brent crude, though, is a bit more delicate and led the rally higher especially after a Bloomberg report that Nexen reported an equipment failure at the Buzzard oil field in the North Sea.

Of course the Midwest refining nightmares continue. If it isn't the fact that the BP Whiting refinery continues in perpetual maintenance you have that Pesky Exxon Mobil Refinery.  Dow Jones reported that "Chicago's leading gasoline traded, conventional-gasoline blendstock, or CBOB, surged again on Monday as relatively thin refiner buying interest continued to be met by extremely thin selling.  CBOB traded as a 1st- and 2nd-cycle package deal at premiums of 50 cents and 55 cents a gallon to July Nymex RBOB futures, which, a Midwest-based broker said, translated to an assessment of 75 cents above Nymex for prompt 1st-cycle delivery only. First-cycle June buyers were last quoted at a premium of 80 cents to July Nymex. Chicago's incremental spot supply has been tight for months since maintenance at two regional refineries has cut production rates.  BP's Whiting Refinery upgrade project in Indiana is nearing completion. The tie-in work necessitated shutting the plant's largest crude unit in November, tightening supply ever since. Exxon Mobil Corp.'s Joliet Refinery in Illinois has been conducting planned, plant-wide turnaround maintenance since mid-April and hasn't provided an estimate for completion.”

These problems continue to keep the national average for gasoline higher.

Ethanol had a wild ride. Wet and soggy conditions had grains rally hard. The market rallied on the planting woes and is pulling back a bit on the fact that  the USDA reported that the planting of the U.S. corn crop was 91% complete, up from 86% a week earlier and that 63% of the corn crop was in good-to-excellent condition. There are 8.55 million acres of corn still unplanted. The soybean crop was 57% planted as of Sunday up from 44% a week earlier well behind the 74% average. There are 8.55 million acres of corn still unplanted as of Sunday .

Oil also has to watch the weather in the Gulf of Mexico. The National Hurricane Center reports that a storm there has a 30% chance of becoming a tropical cyclone.

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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