Oil slide quickens as API reports inventories rise

Supply Side Rising

Oil slides (NYMEX:CLZ13) as stocks edge back up toward record highs. Products slide on hope that Lamont might not be as bad as originally feared. The Fed meets today and the market will try to get a handle on when it might taper, but for oil unless we see a big rally in stocks the oversupplied crude market will be unmoved. Oil still targets $88, and if the American Petroleum Institute report is any indication, we could get there sooner rather than later.

The API showed that U.S. crude supply increased by 5.88 million barrels, which 2.9 million barrels of that was in Cushing, Okla. Refinery maintenance as well as booming production led to the supply surge in supply.

At the same time we saw a bigger than expected drop in distillates, which seemed to give the ultra-low sulfur diesel, or heating oil contract if you will, the edge in a weak petroleum sector. RBOB supply fell by 740,000, yet futures may feel the weight of a falling Chicago cash market. Reports that the Lemont Refinery may be able to do a partial restart alleviate some of the worst case scenario fears. Still according to sources it is unlikely that they will be able to refine heavy Canadian crude and will have to go out and buy sweet. Good thing the sweet grades won’t be too hard to find.

Natural gas sold off (NYMEX:NGZ13) on warmer forecasts but the next big story in gas may be in Europe where an energy crisis may be unfolding. Russia’s state gas firm OAO Gazprom Tuesday demanded Ukraine settle an overdue bill for natural gas supplies of almost $900 million and may cause a cut off of gas like we saw in late 2005 and again in 2008. Reports say that Gazprom Chief Executive Alexei Miller said Ukraine hadn't paid for August supplies and that the company could start demanding advance payments.

Yet behind these disputes is always politics. Russia, while they own the gas supply, the Ukraine controls the pipelines. Russia wants that control and the Ukraine wants a cut in price for gas, the Russians say no way, unless they join an economic bloc, known as the Customs Union that Russia is forming with other ex-Soviet countries. The Ukraine has refused because they distrust Russia probably because among other things they tried to kill their western minded President Viktor Andriyovych Yushchenko. The president rose to power in the so called “Orange Revolution” and unseated a Russian lackey. Soon after he was either poisoned in old KGB soviet style murder attempt or he got some really bad sushi. Stay Tuned! In the past this has been bullish for oil especially Brent. It should also put pressure on the U.S. to expedite U.S. natural gas LNG exports if this blows up...

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.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome