Oil pulls back as IEA projects supply will outstrip demand

Changes

Oil prices pulled back on a report by the International Energy Agency and a report by Genscape about a possible outage of the Seaway Pipeline. Gasoline prices stayed strong on refining issues as well as demand and exports.  Yet despite the focus on the short term fundamentals for the petroleum complex the focus should be also on the changing relationships between the different petroleum contracts.

The emergence of U.S. production is changing the way we view the complex. In recent years the focus for gasoline prices has been Brent Crude as oil landlocked in Cushing, Okla. gave way to imports of Crude into New York Harbor. Now with refiners in the Gulf Coast producing gasoline at a record pace, the focus on the oil vs. gasoline relationship will now focus more on WTI. We are also seeing the WTI/Brent Crude come in and is something I predicted long before many though that was even possible.

The relationship between Brent and WTI almost changed again after Reuters reported "that a report from energy intelligence group Genscape that the 400,000-barrel-per-day (bpd) Seaway crude oil pipeline had been shut down, brokers and analysts said. Genscape said it detected the shutdown of the pipeline, which runs from the Cushing, Oklahoma, storage hub and delivery point for the U.S. futures contract to the Texas Gulf Coast, from decreased power consumption at pumping stations.

Oil also fell after the International Energy Agency reported that global supply will out strip demand. Bloomberg reported that oil supply will outstrip as acceleration in demand growth next year as production outside of OPEC expands at the fastest pace in 20 years, the International Energy Agency predicted. World oil consumption will climb by 1.2 million barrels a day next year, up from 930,000 a day in 2013, the IEA said in its first monthly report with forecasts for 2014. Supplies from outside the Organization of Petroleum Exporting Countries will jump by 1.3 million barrels a day amid booming output in North America, shrinking the need for crude from the 12-member producer group, according to the report. The assessment should "give bulls some cause for alarm," the Paris-based adviser to oil-consuming nations said. "While demand growth is also forecast to pick up momentum," this "will still fall short of forecast non-OPEC supply growth." Brent crude has lost about 2% this year, trading today near $109 a barrel on the London-based ICE Futures Europe exchange, as economic stagnation in Europe, slowing expansion in China and threats to recovery in the U.S. constrain fuel consumption. Dependence on OPEC is dwindling as new drilling techniques enable the U.S. and Canada to unlock reserves from rock formations deep underground. Global demand will average 92 million barrels a day in 2014, advancing by 1.2 million barrels a day, or 1.3% from this year, according to the IEA report.        

Bloomberg Reported that Valero shut its Port Arthur Texas Catalytic Cracker for repair. "Valero was unsuccessful in trying to start the unit earlier today, said the person, who asked not to be identified because he isn't authorized to speak for the refinery. Bill Day, a spokesman for Valero in San Antonio, couldn't immediately be reached for comment. Day said in an e-mail at 11:14 a.m. local time that the 75,000-barrrel-a-day unit was on circulation for maintenance and was expected to "be back in operation soon." He said yesterday that the equipment was put on circulation, a condition in which the unit is idling and ready for a quick restart, after a valve malfunction.  The Port Arthur refinery has a capacity of 310,000 barrels a day, according to data compiled by Bloomberg."

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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