Oil moves beyond taper talk to focus on fundamentals

After The Taper

It looks like the oil market (NYMEX:CLV13) finally is trying to put all of the taper talk and taper fears behind them. Oil rose as the stock market showed signs of life despite the trading glitch at the Nasdaq.  It looks like the market has priced in the taper and now is ready to focus on those old fashion fundamentals like supply and demand and geo-political risks to supply.

The strong manufacturing data in China and the U.S. boosted demand hopes. Geo-political worries also served as a backdrop for the buying.

The scale back in bond buying is causing fear and turmoil in emerging currency markets. These economies have seen a surge based on the hot money fleeing the Feds quantitative easing as investors desperately sought yield. Now that hot money has turned a cold shoulder on these commodity consuming economies and now those economies that fretted strong currencies and rising inflation are now worried about losing it.

So now not only do we have to worry about weather, supply and demand, the uncertainty of currency risk may be  more of an issue. Brazil and Turkey have already intervened in their currency and there may be more intervention to come. This of course can cause some hurt feelings. U.S. automakers are decrying Japan's massive yen printing as creating glut of cheap Japanese cars. Currency War phase 2.

Of course Ben Bernanke does not want to hear about it! That may be why he is skipping Jackson Hole. He is getting ready to retire and the way he sees it, his policy of QE saved the global economy from the brink of disaster now the cleanup is someone else's problem.

Natural Gas came roaring back as hot weather and power generation for Natural Gas!  The Energy Information Administration reported that working gas in storage was 3,063 Bcf as of Friday, August 16, 2013, according to EIA estimates. This represents a net increase of 57 Bcf from the previous week. Stocks were 238 Bcf less than last year at this time and 44 Bcf above the 5-year average of 3,019 Bcf. In the East Region, stocks were 103 Bcf below the 5-year average following net injections of 47 Bcf. Stocks in the Producing Region were 88 Bcf above the 5-year average of 969 Bcf after a net injection of 4 Bcf. Stocks in the West Region were 59 Bcf above the 5-year average after a net addition of 6 Bcf. At 3,063 Bcf, total working gas is within the 5-year historical range.

Also the Energy Information Administration gave their outlook for end of refill season storage. EIA projects natural gas inventories to reach 3,800 billion cubic feet by Oct. 31, 2013—the nominal end of the summer injection season. Injections of natural gas into storage often continue into November, depending on weather and storage levels at the time. 

Reuters Reports that " The brisk flow of oil barges shipping crude oil down the Mississippi has slowed to a trickle this summer, curbed by the vanishing gap in prices between inland and coastal prices. Yet the barge market has barely lost a step. Now, instead of moving a glut of North Dakota crude out of Oklahoma or St. Louis, refiners and traders have redeployed their nimble fleet to the inland waterway linking southern Texas ports to Gulf of Mexico refineries, tapping into cheap barrels of Eagle Ford shale, officials say. The small shallow-draft Port of Victoria, just 30 miles south of the Texas shale oil patch, loaded river-going barges with nearly 55,000 barrels per day (bpd) of Eagle Ford crude last month, more than double January's rate.

Meanwhile, business at the port of Catoosa, Oklahoma, a 45-minute drive from the storage hub of Cushing, slowed to just 4,300 bpd in June, one-third the norm earlier in the year. The shift in flows is the latest turn in the rapidly evolving North American oil trading landscape, where arbitrage opportunities regularly surface, only to vanish months later, as the market works out the logistical kinks of moving fast-rising shale production to willing refiners. The barge trade took off two years ago, as a lack of pipeline capacity to pump surging North Dakota and Canada oil output to Gulf Coast refineries forced traders to turn to alternate, more costly means of transport: barges, trucks and trains.

The nation's fleet of over 3,000 inland barges, each capable of hauling between 10,000 and 30,000 barrels of crude, were pressed into service shipping oil south along the Mississippi, or along other Midwest waterways, to the Gulf Coast, lifting day rates and boosting revenues for barge owners like Kirby (KEX.N) and American Commercial Lines. That traffic has collapsed since May as the gap between benchmark U.S. crude in Cushing, Oklahoma, and global marker Brent narrowed this summer to parity. New pipeline capacity drained those Midwestern inventories; erasing the profits companies could make barging oil to the Gulf Coast.

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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