Oil looks to inventories as Washington stalemate continues

Asking the Tough Question

In the ongoing rhetoric over the looming fiscal celling and the ongoing government shutdown, one Fed official told them how he really felt. Dallas Federal Reserve Bank President Richard Fisher said that the Congressional stalemate was an "embarrassment" to the country. He even went as far as to say that "We have three stooges in Washington."

Yet despite that bold pronouncement, no one dared to ask him the obvious questions. Who is Moe, who is Larry and who is Curly?  In fact, what was not widely reported in the much anticipated phone call conversation between Speaker John Boehner and President Obama, NSA transcripts have the conversation going something like “"nyuk-nyuk-nyuk!," "woob-woob-woob!" and "soitenly!"

Perhaps that should be a question that Janet Yellen should have to answer as today President Obama has given into political pressure and finally nominated his third choice to replace Ben Benanke at the Fed chair, the honorable Janet Yellen.  Ms. Yellen of course is one of the biggest defenders of quantitative easing. Commodity bulls and emerging markets economies who have built their economic recoveries on the back of U.S. Fed policy will applaud her nomination on hopes that the QE party will continue indefinitely. Her nomination is another sign that Fed tapering is further off in the future.

Janet Yellen was a loyal defender of big bad Ben Bernanke. The last thing he would want to do is impose a taper on her right before Christmas. Yet if he did, he might be doing her a favor. She could then deflect the blame on her predecessor. How convenient.

Oil will be looking at inventories and any signs of intelligent life in Washington or elsewhere. The Energy Information Administration, which runs out of cash at the end of the week, not only will release its data but also released their all-important winter fuels outlook report.

In what was a turning point for this report, for the first time in many years the EIA raised the year-over-year forecast for heating your home with natural gas and propane saying you would pay more than last year.  The report highlights are as follows:

  • EIA projects average U.S. household expenditures for natural gas and propane will increase by 13% and 9%, respectively, this winter heating season (Oct. 1 through March 31) compared with last winter. Projected U.S. household expenditures are 2% higher for electricity and 2% lower for heating oil this winter. Although EIA expects average expenditures for households that heat with natural gas will be significantly higher than last winter, they are still lower than the previous five-year average (see EIA Short-Term Energy and Winter Fuels Outlook slideshow).
  • Brent crude oil spot prices fell from a recent peak of $117 per barrel in early September to $108 per barrel at the end of the month as some crude oil production restarted in Libya and concerns over the conflict in Syria moderated. EIA expects the Brent crude oil price to continue to weaken, averaging $107 per barrel during the fourth quarter of 2013 and $102 per barrel in 2014. Projected West Texas Intermediate (WTI) crude oil prices average $101 per barrel during the fourth quarter of 2013 and $96 per barrel during 2014.
  • The weekly U.S. average regular gasoline retail price fell by 18 cents per gallon during September, ending the month at $3.43 per gallon. EIA's forecast for the regular gasoline retail price averages $3.34 per gallon in the fourth quarter of 2013. The annual average regular gasoline retail price, which was $3.63 per gallon in 2012, is expected to be $3.52 per gallon in 2013 and $3.40 per gallon in 2014.
  • Natural gas working inventories ended September at an estimated 3.52 trillion cubic feet (Tcf), 0.17 Tcf below the level at the same time a year ago and 0.04 Tcf above the previous five-year average (2008–12). EIA expects that the Henry Hub natural gas spot price, which averaged $2.75 per million British thermal units (MMBtu) in 2012, will average $3.71 per MMBtu in 2013 and $4.00 per MMBtu in 2014.
  • Despite a rise in natural gas prices from their 2012 level, stable coal prices and an increase in electricity generation from coal contribute to only modest increases in retail electricity prices. EIA expects residential electricity prices to increase by 2% in 2013 and 1% in 2014.

Other market of note, natural gas rallied as a combination of hot and cold temperatures seemed to add to the buying. The cold temperatures also drove Feeder cattle to record highs.  Cocoa also rallied as rains in North Africa should slow harvest and exports.  Gold is meek and silver is stronger but not a lot of passion as we continue to get mixed messages from Washington. Copper is out of favor with investors according to a Dow Jones popularity contest.

The API reported that crude stock increased by 2.8 million barrels. Gas fell by 2.8 million barrels, distillate stocks fell by 1.1 million barrels. Crude imports up while Cushing Runs fell by 2.7 to 86.8

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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