Oil weakens as supply increase eclipse Fed impact

No Jobs Friday

It is no jobs Friday not because there are no jobs but there is no jobs report. We will get the ISM report where expectations are rising after a stellar Chicago Purchasing Managers number. The Chicago ISM's October Index was released 65.9 from last month's 55.7 reading. Economists were expecting it to decline slightly to 55.0. The number is showing the rising impact of booming oil and natural gas production courtesy of big and little oil. Reuters points out that data, released on Wednesday along with figures showing the largest six-week increase in overall U.S. inventories since April 2012, pressured U.S. crude prices (NYMEX:CLZ13), which helped boost the premium for Brent.

Now some said that oil weakened on the fact that the dollar rallied as the market now expect tapering sooner than later in our mini-Chicago production boom. Yet while the impact from the Fed still has some impact on oil, supply increases are increasing calling the shots. Oil prices are being driven lower by booming supply

Gasoline prices fell as expiration and expectations of improving refinery runs improved the supply outlook. Bloomberg News reported that “Gasoline retreated after a report that an East Coast refinery restarted a production unit. Futures fell from a seven-day high after Delta Air Lines Inc.’s Monroe Energy LLC subsidiary said it is operating the fluid catalytic cracker at its Trainer, Pennsylvania, refinery after unplanned repairs. The 185,000-barrel-a-day plant serves the Central Atlantic, which includes the New York Harbor delivery point for Nymex product futures.”

The motor fuel’s crack spread versus West Texas Intermediate crude narrowed 90 cents to $12.43 a barrel. The fuel’s spread versus Brent slipped 44 cents to a 19-cent discount.  U.S. retail pump prices, averaged nationwide, were unchanged at $3.279 a gallon, Heathrow, Florida-based AAA said today on its website. Prices are 24.9 cents below a year ago. Ultra-low-sulfur diesel for November delivery fell 1.63 cents, or 0.5%, to $2.9623 a gallon on trading volume that was 21% below the 100-day average. December futures dropped 1.82 cents, or 0.6%, to $2.9586.  ULSD’s premium over WTI declined 37 cents to $27.89 a barrel. The spread versus Brent widened 8 cents to $15.25.

Reuters reports  that oil producers are expected to begin filling the southern leg of TransCanada's Keystone pipeline next month, which will also drain supplies from Cushing, Okla., a place where supply increased last week.

Bloomberg Reported that “Crude options volatility fell as the underlying futures slipped to a four-month low. Implied volatility for at-the-money December options, a measure of expected futures swings and a key gauge of value, was 19.36% at 3:35 p.m. on the New York Mercantile Exchange, down from 19.92% yesterday. Puts protecting against a 10% drop in prices were 27.99% compared with 28.02 in the prior session. 

My good friend Andrew D. Weissman writes that “The debate over the extent of U.S. liquefied natural gas exports brewing in Washington has far-reaching implications for the upstream oil and gas industry, and the country. It is vital for every producer to understand why the stakes are so high and the work that needs to be done to maximize opportunities for the industry.”  It is clear that LNG exports represent the next big breakthrough opportunity for the U.S. natural gas industry. This article explores in depth the size of the potential market for U.S. LNG exports and clamors for the evidence that can be marshaled to support the industry’s position. It concludes that the industry can and should develop a compelling set of facts to “blow the opposition out of the water” to an extent that has not yet occurred.

By telling the industry’s story more effectively, producers can demonstrate convincingly that the United States can simultaneously ramp up LNG exports at a rapid rate while fully satisfying a host of other emerging market needs, with only a minimal impact on energy prices in the domestic market. The sooner this evidence is assembled, the more likely it is that the natural gas industry can rebound decisively, and reap more fully the benefits of the historic breakthroughs in natural gas development it has achieved over the past few years.”

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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