Oil rises after bullish API inventory, refinery issues

Crude Crazy!

A wildly bullish American Petroleum Institute report and reports of refinery issues as well as a blowout had crude oil (NYMEX:CLQ13) go crazy late in the day. The bulls have gripped control as the market has gone out of control. Even weak import-export data out of China is being seen as bullish as it would suggest that China will have to be more accommodative. Oil demand is at its highest level since December 2009 and Americans are starting to fill their gas tanks once again. 

Either the API is crazy or maybe I am. Maybe we are both crazy. Myra P. Saefong MarketWatch reports “Oil futures climbed well above $104 a barrel in electronic trading Tuesday evening following news that the American Petroleum Institute reported a 9 million-barrel drop in U.S. crude supplies for the week ended July 5, according to reports.” A Platt’s survey of analysts showed a forecast for a 3.8 million-barrel decline. 9 million barrels? Are they serious?

Oil rallied also on early reports of a well blowout but calmed a bit after details came in. Reuters reported “An inactive natural gas well in the shallow Gulf of Mexico suffered a blowout on Tuesday as operators were trying to permanently plug the well, causing an oil sheen that briefly rekindled memories of the BP Plc spill three years ago.” Houston-based Talos Energy LLC said it was in the process of shutting the inactive Ship Shoal 225 B-2 well when natural gas and condensate began flowing on Monday. "In an abundance of caution, we decided to evacuate the platform and mobilize our spill response team, we notified the U.S. Bureau of Safety and Environmental Enforcement and the U.S. Coast Guard, and we shut-in two other producing wells at the platform," said Talos President and Chief Executive Timothy Duncan. Talos, which owns the well through its subsidiary Energy Resources Technology Gulf of Mexico LLC, said the well should be plugged within 24 hours. The leak may have been due to the age of the tubing on the well, the company said.”

The Energy Information Administration, in its July update to its’ short-term energy outlook, said demand for gasoline is expected to average a 12-year low of 8.844 million barrels a day over the peak spring-summer demand season, down 0.6% from a year earlier. In June, the EIA projected a 0.8% year-on-year drop, in part due to improved vehicle fuel-efficiency standards. August heating oil, which trades as a proxy for diesel fuel, settled 0.56 cent higher, at $2.9857 a gallon.

The Energy Information Administration Short Term Energy Outlook Highlights!

Gasoline: “U.S. gasoline prices are expected to be lower during the second half of 2013, falling to an average of $3.38 a gallon.  Increased oil refinery fuel production, particularly as facilities are back on line in the Midwest, and lower crude oil costs will help to ease pump prices.”

Crude Oil: “After U.S. crude oil production reached 7 million barrels a day at the end of last year for the first time in two decades, daily oil output is on its way to topping 8 million barrels by mid-2014.”

“EIA expects global liquid fuels production to come close to matching liquid fuels consumption in the third quarter of 2013, with estimated global inventory withdrawal averaging 70,000 barrels per day, compared with the average withdrawal of 890,000 barrels per day during the same period over the previous four years.”

“The price discount of West Texas Intermediate crude oil to Brent oil, which was more than $23 per barrel in mid-February, fell below $5 per barrel in early July. EIA expects the WTI discount to begin widening again, to $8 per barrel by the end of 2013, as crude oil production in Alberta, Canada recovers following the heavy June flooding and as midcontinent oil production continues to grow.”

Natural Gas: “U.S. natural gas spot prices declined from an average of $4.04 per million Btu in May to $3.83 in June, partly in response to gas inventory builds that exceeded market expectations. Natural gas injections into underground storage during June totaled 373 billion cubic feet, which is about 50 billion cubic feet more than the previous five-year average injection for the month. EIA expects natural gas prices will remain below $4 through the end of 2013, as production remains robust and coal regains some of its lost share of the electricity generation market.“

Bloomberg News is reporting that “The Organization of Petroleum Exporting Countries forecast the world will need less of its crude next year, even as global oil demand growth rebounds to its strongest pace since 2010, amid competing supply sources.  Demand for OPEC’s crude will slip by 300,000 barrels a day next year to 29.6 million a day next year, or about 2.6% less than the 12-member group is pumping now, the organization said in its first set of forecasts for 2014. The need for OPEC’s crude will diminish even as global oil demand growth recovers to 1 million barrels a day in 2014, from 800,000 a day this year, amid rising output in the U.S. and Canada.

“The strong growth trend seen in 2013 is expected to continue in 2014” for production from outside OPEC, the organization’s Vienna-based secretariat said in its monthly market report today. Dependence on OPEC’s crude is slipping as the U.S. and Canada unlock unconventional oil supplies from deep underground shale deposits with new drilling techniques. Brent crude futures have slipped 2.7% this year, trading at about $108 a barrel on the London-based ICE Futures Europe exchange today, amid signs of slowing growth in China and uneven recovery in the U.S., the world’s biggest oil consumers.  World oil consumption will advance by 1 million barrels a day, or 1.2% to 90.7 million next year as emerging nations expand and developed economies continue to recover, the organization said. Demand estimates for 2013 were kept mostly unchanged, with an anticipated growth rate of about 800,000 barrels a day, or 0.9%, to 89.6 million.

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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