Oil premiums swing as Egypt’s military delivers ultimatum

Ultimatums

Oil prices are on the rise as the Egyptian military gives Egyptian President Mohamed Morsy an ultimatum that he can't refuse — but he did anyway. We also had an ultimatum to Greece.  Apparently according to at least four EU officials, Greece has three days to reassure Europe and the International Monetary Fund that it can deliver on the conditions attached to its international bailout to receive the next tranche of aid. Yet despite these developments the most interesting move in the energy complex was the tightening Brent/WTI spread.

A few years back, when I dared suggest that West Texas Intermediate oil would regain its stature as the world's global benchmark, many thought I was crazy. Yet now it is clear that not only is WTI getting more in line with the global market price, but the status of the United States as the number one consumer and on its way to being a major exporter is forcing the world to take WTI seriously once again.

We knew of course there was no way that oil that was piling up in Cushing, Oklahoma would stay there forever. I knew that somehow and someway that oil would eventually find its way to a global market that was screaming for new supply.

Yesterday, despite North Sea production problems and possible coup/civil war possibilities in Egypt the Brent/WTI crude came into a 2 and a half year low year low. Now that oil is being moved out of Cushing Oklahoma by pipeline, rail and yes even trucks, the Brent WTI spread that had traded out as far a $23 spread last February after the turmoil in Libya has come crashing down.  This was surprising to some as it appears that the Egyptian Military is going to make sure that the President gives into the demands of the people or else they will give their own roadmap. The vagueness of the statement means that the market is uncertain.  It is possible that we could be getting prepared for another civil war, a prospect that is not pleasant when you have a country that has the Suez Canal and the SUMED pipeline to worry about.

WTI found extra strength against Brent for other reasons as well. The U.S. manufacturing data was a pleasant surprise as The Institute for Supply Management reported that U.S. manufacturing increased to 50.9 in June from 49 last a month. That gave U.S. oil demand an edge.  We also had those Canadian Enbridge pipeline outages last week that should also tighten U.S. supply.

Also the Whiting, Indiana BP crude unit is back up and running, which should also take a bite out of supply. Last week Bloomberg reported that "BP Plc has begun starting the converted crude unit at its Whiting, Indiana, plant, which will allow the largest U.S. Midwest refinery to process mostly heavy crude from Canada.  Scott Dean, a BP spokesman in Warrenville, Illinois, said in an interview today that the crude unit remains on schedule to be brought online by month's end. The 250,000-barrel-a-day crude unit and a new delayed coker will allow Whiting to process as much as 85% heavy Canadian crude from about 20%, according to the company's website.

Anna Louie Sussman of  Reuters writes "Thanks to the U.S. shale energy boom, the once-quiet niche of U.S.-flagged oil tankers is in unprecedented flux. A half-dozen vessels that typically carried gasoline to Florida are now rushing crude oil along the Texas coast. Major investment at the port of Corpus Christi, which now exports more than half of all Eagle Ford shale oil, suggests more to come even as new pipeline projects promise further market shifts. The shale oil revolution, now in its third year, has already scrambled the inland U.S. crude market, forcing pipelines to reverse direction and fuelling a revival in railway oil trade. Since the start of this year, the U.S. oil tanker industry has jumped into the act, with traders including BP and Royal Dutch Shell racing to charter a handful of the three-dozen U.S.-flagged tankers permitted, per a century-old law called the Jones Act, to carry oil between U.S. ports. The trade is helping Gulf Coast refiners such as Valero VLO.N cut costs and wean plants off imported sweet crude.”

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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