Oil finds support in Yemen terror threats, strong China data

Japan Misses

Japan growth misses the mark as its GDP came in at a disappointing 2.6%. The trade was looking for a 3.6% reading and the big miss probably means that Japan will continue on its massive stimulus effort. Bloomberg reports "The report adds to the debate on whether Japan is strong enough to sustain a planned 3 percentage point bump in the sales tax in April, with Prime Minister Shinzo Abe deciding in coming months on whether to proceed. While consumers continue to propel Japan's rebound, companies have yet to commit to the Abenomics project, paring capital spending for a sixth straight quarter.

This comes after oil (NYMEX:CLU13) rejected breaking out to the downside on the heels of terror threats to oil out of Yemen and embassy closings as well as strong data out of China. This reversed oil and brought back the entire petroleum complex and broke oil’s five-day losing streak. Oil supply in the U.S. has been falling as refiners reacted to strong margins and flexed their new hard won refining capacity.

My buddy Trilby Lundberg of the Lundberg survey reported that the average price for regular gasoline at U.S. pumps fell 7.61 cents in the past two weeks to $3.5985 a gallon. The survey polls 2,500 gas stations across the country and according to her data gas price hit its year-to-date peak of $3.795 Feb. 22, is 9.22 cents below the year-earlier price of $3.6907 a gallon. We might wonder if prices will fall further in the aftermath of the EPA blinking on RINS. The extension helped RBOB futures retreat and now the market can focus on the glut of supply. Of course regional issues could keep prices elevated in the Midwest.

The Energy Information Administration is reporting on another milestone in the U.S. gas and oil shale revolution. The EIA's August 2013 Short-Term Energy Outlook forecasts that China's net oil imports will exceed those of the United States by October 2013 on a monthly basis and by 2014 on an annual basis, making China the largest importer of oil in the world. The imminent emergence of China as the world's largest net oil importer has been driven by steady growth in Chinese demand, increased oil production in the United States, and a flat level of demand for oil in the U.S. market.  U.S. total annual oil production is expected to rise by 28% between 2011 and 2014 to nearly 13 million barrels per day, primarily from shale oil, tight oil, and Gulf of Mexico deepwater plays. In the meantime, Chinese production increases at a much lower rate (6% over this period) and is forecast to be just a third of U.S. production in 2014.

On the demand side, China's liquid fuels use is expected to grow by 13% between 2011 and 2014 to more than 11 million barrels per day while U.S. demand hovers close to 18.7 million barrels per day, well below the peak U.S. consumption level of 20.8 million barrels per day in 2005.  Looking beyond 2014, higher U.S. oil production and stagnant or declining U.S. oil consumption, coupled with China's projected strong oil demand growth and slow oil production growth, suggest that once China replaces the United States as the world's largest net oil importer, the gap between net oil imports in China and the United States will grow. There are several different ways to measure oil import dependence. Discrepancies in the way dependence is assessed arise because oil is imported as crude oil but consumed as refined products, of which crude oil is the main but not only input.

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