Oil maintains price amid supply drops, Fed taper talk

Will We Taper In September?

We'll watch the data each and every night, We'll start to cover if it looks too bright. (Buy-buy so long, farewell Buy-buy so long.) Will we taper in September, will we say goodbye when the summer's  through? Here we are (buy, baby, good buy) say goodbye cash creation, QE fixation, feds taking you away! These are good times but remember there is danger in the summer moves above. Will we taper in September or loosen to please summer doves.

Goldman Sachs says that the Fed will say goodbye to easing and start to tapper bond buys in September. The so-called taper is sending stocks lower but oil is hanging tough. A shocking draw in crude supply as reported by the American Petroleum Institute and a tropical disturbance in the Gulf of Mexico is keeping us elevated despite tapering fears. The API showed a big drawdown in crude supply mainly in the West Coast and the Gulf Coast. The West Coast might be in part because of tropical storm Barbara that may have slowed oil shipments into the region. The Gulf Coast draw is a bit harder to explain and could be because of slowed movements out of Cushing Oklahoma due to the massive tornados and storms. In other words the weather had an impact on the movement of supply.

It could also have an impact next week as well. The National Hurricane center is reporting that a disturbance has a 50% to become a cyclone. The NHC says "Broad area of low pressure over the central Gulf of Mexico is producing a large area of disorganized thunderstorms and strong gusty winds over the southeastern Gulf of Mexico. Although the thunderstorm activity associated with the low has increased overnight...the circulation remains poorly-defined.  Environmental conditions could become a little more conducive for development during the next day or so...and a tropical depression or storm could form before the system moves northeastward over northern Florida late Thursday or Thursday night.  This system has a medium chance...50%...of becoming a subtropical or tropical cyclone during the next 48 hours.  An Air Force Reserve reconnaissance aircraft is scheduled to investigate this disturbance this afternoon...if necessary. Regardless of development...locally heavy rains and gusty winds are likely over portions of central and western Cuba...the Florida Keys...and the Florida peninsula during the couple of days. Additional information on this system can be found in high seas forecasts issued by the national weather service...and in products issued by your local national weather service office or national meteorological service.”

This storm is offering support to natural gas as well. Add to that above normal temperatures in the south. The Center for Climate and Energy solutions put out a report that touted the benefits of natural gas use for the environment but warned of leaks.

Brent also saw support from increased geo-political risk as well as support for oil from South Korea. Brent increased on reports that Syria used sarin gas against its own people. Game changer perhaps? Also a report by Reuters  that " South Korea has boosted incentives for crude oil imports from regions other than the Middle East, two energy ministry sources said, in a move that may increase demand for crudes priced off the Brent benchmark. South Korea, the world's fifth-biggest buyer of crude oil, has been trying to cut its heavy reliance on Middle East exporters amid rising geopolitical risks in the region that has put supplies at risk. Already, the Asian country has been forced to cut crude imports from Iran as sanctions from the West tighten in a bid to force Tehran to halt a controversial nuclear program" South Korea has been trying to cut its heavy reliance on Middle East exporters amid rising geopolitical risks in the region that has put supplies at risk. Already, the Asian country has been forced to cut crude imports from Iran as sanctions from the West tighten in a bid to force Tehran to halt a controversial nuclear program. Under a revised law, which took effect on a June 1, for crude oil imports from the America's, Africa and Europe, South Korea will pay back 90% if the freight charge difference with Middle east suppliers if annual imports by a company reach 2 million barrels a year, down from 7 million previously.

This law was designed to manage supply risk after we went through two oil shocks in the past. "If we depend upon a certain place for supply, the oil price can also be distorted," a source at the energy ministry told Reuters. The law, first enacted in 1982, was reviewed every three years, the source said, adding that the revision is not linked to cuts in oil supply from Iran. South Korea imported about 56 million barrels of oil from Iran last year, nearly 6% of its total imports, but imports have fallen 28% over the first four months of this year.”

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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