Oil faces tough battle against rising U.S. dollar

QE Unwind

Commodities are getting crushed as strong U.S. data increase the odds that the Federal Reserve is getting closer to "The Great Taper." Surging consumer confidence that soared to a five-year high along with strong housing data sent the dollar soaring. Easing concerns surrounding China also led to the weakness. A breathtaking move lower in precious metals is the feature today as the market tries to access a world after QE... The impact of QE on commodities is most clear when the Fed says that the party is going to end. While some fed officials tried to calm the markets, the economic data seems to be speaking louder. The stronger dollar is now reigning supreme as no one seems to want anything to do with metals.

Bloomberg News reported that "Enbridge restarted a segment of its oil-sands pipeline system in Alberta and was working to return capacity as Nexen Inc. and Suncor Energy Inc. cut output." Dow Jones reported that "Enbridge was  working to repair and return to service a 100,000-barrel-a-day pipeline found to have leaked crude oil and that two other pipelines in northern Alberta with a total capacity of 945,000 barrels a day also have been shut temporarily as a precaution."

Yet the short term loss of that crude will still increase demand for WTI. While we did see the Brent/WTI spread bounce back from a two-year low after the news, more movement of WTI  oil out of Cushing may help WTI reestablish its premium to the Brent Crude.

The other factor for the relative strength in WTI was the restart of the Whiting, Indiana Crude unit that was under maintenance and was one of the main reasons for the Midwest gasoline price spikes. The Energy Information Administration is reporting "The national average retail price of regular gasoline fell 4.9c to $3.577 a gallon in the week ended Monday, June 24th."

Natural gas got cracked on moderating temperatures as well as option expiration. Not even President Obama's speech on global warming seemed to change natural gas’ short term fortunes. President Obama punted on the Keystone Pipeline saying it would only be approved if it did not significantly lead to more greenhouse gases. Well we just had a report that said it would not, but at least he is now honest with the American people about why he delayed it. I thought it was because the pipeline went over the water aquifer. Bloomberg reported that “Heavy crude oil to be carried by the proposed Keystone XL pipeline poses no greater risk of a spill than other types of oil, the National Research Council said in a report." The report disputes arguments made by Keystone opponents that diluted bitumen, a tar-like substance mined in Alberta's oil sands, is more corrosive than conventional crude oil and is more likely to create ruptures and oil spills in pipelines. The review of spills "did not find any causes of pipeline failure unique to the transport of diluted bitumen," according to a statement from the council, part of the National Academy of Sciences that advises the U.S. government on science policy

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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