Quote of the Day
A whole is that which has beginning, middle and end.
Oil prices (NYMEX:CLU13) are drifting lower ahead of this morning’s EIA oil inventory report as well as this afternoon’s release of the minutes from the last U.S. Fed FOMC meeting. Last night’s API report was mixed with draws in crude oil and gasoline and a build in distillate fuel (see below for more details). The market has been retracing this week in spite of the ongoing supply issues in Libya and now in Iraq. Yesterday the strikes in Libya ratcheted up once again with violence in one of the ports and moved to head off attempts by strikers to sell oil themselves at the largest crude oil terminal according to a report by Reuters. However, the Libyan oil ministry said yesterday that two terminals are ready to resume exports. A mixed picture coming from Libya but one that is still evolving.
In Iraq a bombing stopped crude oil flow through the Iraqi to Turkey pipeline today. Two blasts halted the flow of crude oil through the pipeline due to damage to the line. Even though the market has been drifting lower this week the supply issues that have been in play since the latest upside rally started are continuing and some instances (Iraq) are intensifying. Also the ongoing conflict in Egypt and Syria is also adding support to the geopolitical risk premium that has now evolved into the price of oil…especially Brent.
An area that has not retraced this week… the Brent/WTI spread has continued to widen with a strong surge to the upside occurring during yesterday’s trading session. As I have been discussing in the newsletter the spread has been in a short term widening pattern since the spread hit parity in mid-July. This pattern is likely to continue until there is a change in the supply problems in places like Libya and Iraq as well as a return to more normal operations in the North Sea, which is in its maintenance program.
Further supporting the widening of the spread was a report by Genscape that the Seaway pipeline (a line from Cushing to the Gulf Coast) was shut down due to problems early yesterday morning and as of late yesterday afternoon the line remains shut. The Seaway line has been pumping between 200,000 to 300,000 bpd for the last month or so. Although there will be another draw in Cushing crude oil stocks this week if the Seaway pipeline remains shut for any length of time, the eight-week old destocking pattern in Cushing could be interrupted and thus supportive for further widening of the spread.