When will we cross the Rubicon? There are two issues and perhaps two river and two events that will twist trader's allegiances in the oil market, and that is of course war and tapering. Oil prices (NYMEX:CLV13) are pushing back the timing of an attack on Syria, so now the market can focus on the price impact of Fed tapering. The Senate Foreign Relations Committee eked an approval of a war resolution by vote of 10–7, not exactly a ringing endorsement. What that means is that the October crude delivery will be unencumbered by war but may face the full fury of the Fed. The short term yields are rising as the economic data suggests that we will start the long journey back to interest rate normalcy. Whatever that happens to be.
Brent crude of course continues to be vulnerable. Not only does the market worry about war but it worries about tightness of supply. Forget Syria, Libyan oil production is taking its toll that even Libyan refiners have to close. High quality crude is getting harder to get and that means that Brent crude is most likely to spike. Not to mention Iraq where pipeline attacks and violence has impacted Iraq production.
It also means that the world will look to the U.S. to use their newfound production and refining capacity to fill the void from European refiners that will soon go into big time maintenance. Amrita Sen, chief oil market strategist at Energy Aspects Ltd., the new must have report says that planned maintenance will lower European refining capacity by 1.3 million barrels a day in September and 1.6 million in October and will reduce crude demand by 900,000 barrels a day.
Of course that means if the U.S. strikes, then Brent crude will lead any price surge. President Obama will arrive at the G20 and will try to make his case to the world that they have to act on Baser Assad and his regime. His host, Vladimir Putin, will be a tough sell and the market will wait to see if we get any sign that Putin will ease his opposition to an attack.
The American Petroleum Institute seemed to give the market a bit of support when it reported that crude oil inventories fell by 4.2 million barrels. Refiners are still running at a very high 91.0 clip and that came as gas stocks fell by 387,000 barrels and distillate stocks 109,000 barrels. It means that demand is very good and U.S. exports are running at a very high rate.
Today we get the Energy Information Administration report not only on petroleum but also on natural gas. Natural gas has been soaring on hot temperatures down south, but also on tropical storm activity. Tropical storm Gabriel has formed and should turn and go up the coast and miss the Gulf but there is a storm ahead of it and one behind it.