Brent oil gaining on WTI as Egypt fears increase

Brent Blowout

Brent crude is gaining on West Texas Intermediate contract as fears are rising that the situation in Egypt could spin out of control. The crackdown on Morsi supporters by the Egyptian military police led to the resignation of Egypt's Interim Vice President Mohamed ElBaradei who said that it should have been done in a peaceful way. That tension added more upward momentum to the Brent crude that already was being supported by labor unrest in Libya that lowered Libyan oil production to its lowest since the 2011 civil war.

The Energy Information Administration tried to bring the spread in line with a slightly bullish inventory report.  A surprise drawdown in crude supply and gasoline was offset by the fact that the drawdown in Cushing, Okla., the Nymex delivery point, was in line with expectations. The surprise draw in gasoline was balanced with the fact that supply is coming off from multi-decade highs and a drop in gas production is a sign that refiners are starting to wind down for seasonal maintenance.

The EIA reported that “U.S. crude oil refinery inputs averaged over 15.6 million barrels per day during the week ending August 9, 2013, 282 thousand barrels per day below the previous week’s average. Refineries operated at 89.4 percent of their operable capacity last week. Gasoline production decreased last week, averaging 9.1 million barrels per day. Distillate fuel production decreased last week, averaging about 4.9 million barrels per day.

What also brought back WTI is the growing threats of storms in the Gulf Of Mexico.  Bloomberg News reported that the Manta Ray deep-water oil platform has started to evacuate non-essential personnel from Ship Shoal 207 and Ship Shoal 332 platforms today, the company says in website posting. The Manta Ray offshore gathering system remains in service but as a precaution do to an area of low pressure in northwestern Caribbean Sea that has a 70% chance of becoming a tropical cyclone according to the National Hurricane Center. On top of that Tropical Depression number 5 has formed and could become Erin or Fernand depending on the low pressure system in Gulf and Mother Nature. Stay tuned!

Nat gas got a bit nervous but may be more nervous about today’s EIA report. We are looking for an injection of 67 bcf.

Gold and silver are on a tear despite the fact that John Paulson reduced his holdings and the World Gold Council reported a drop in investor demand. Yet wtrong demand from India and China and a tightening of supply due to mine closures and capital spending cuts could set the stage for the next bull run. Dow Jones reports that “U.S. data due later in the day, including figures relating to inflation, employment and manufacturing and industrial production, will be watched by investors. While manufacturing and industrial data will likely be scrutinized for clues as to the health of U.S. real demand for base metals, jobless claims may be eyed for clues regarding the longevity of the Federal Reserve's economic stimulus program, which has supported demand for the complex.”

The World Gold Council reported that consumer demand for gold was up 53% in Q2 2013 led by strong growth in China and India. In their  latest “World Gold Council Gold Demand Trends” report, which covers the period April-June 2013, highlights how recent falls in the gold price have generated significant increases in demand, most notably from consumers in China and India — by far the biggest markets for gold — compared with the same time last year.

Globally, jewelry demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewelry in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.

Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewelry demand and bar and coin investment together, global consumer demand totaled 1,083t in the quarter, 53% higher than a year ago.

For the tenth consecutive quarter, central banks were net buyers of gold, purchasing 71t, which reinforces the trend that began in Q1 2011. 

Demand in the technology sector was stable once again, totaling 104t, a rise of 1% on last year.

Meanwhile gold held in gold-backed ETFs, which in 2012 accounted for just 6% of the world’s gold demand, fell by just over 400t, driven by hedge funds and other speculative investors continuing to exit their positions.  This was predominantly in the US.

Overall, demand for gold in Q2 2013 was 856t, down 12% on a year ago.

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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