WTI crude find support as oil trade unwinds

The Great Unwind

It is not really like West Texas Intermediate oil (NYMEX:CLF14) is going up so much as Brent Crude is going down. The oil trade of the last few months continues to unwind. Traders are preparing for the completion of the Keystone pipeline and the fact that North Sea production is coming back on line. So even with oil supply at the highest level since the 1930s, the great unwind will keep supporting WTI at least for now. Value-added industrial output in one of the world's largest crude consumers rose 10% in November from a year earlier, data from the National Bureau of Statistics showed Tuesday.

Bloomberg Reports that WTI surged 5.3% last week and the WTI-Brent spread tightened after U.S. crude inventories declined for the first time in 11 weeks and TransCanada announced plans to start part of its Keystone pipeline to the Gulf Coast from Cushing, Oklahoma, the delivery point for the Nymex futures. Supplies fell 5.59 million barrels to 385.8 million in the week ended Nov. 28, the EIA said Dec. 4. Refineries operated at 92.4% of capacity, the most since September. Utilization rates usually pick up in December after maintenance is performed during the lull in fuel use between the summer driving and the winter heating periods. 

TransCanada began injecting oil into the southern portion of the Keystone pipeline on Dec. 7, Shawn Howard, a spokesman based in Calgary, said in an e-mailed statement. The company will inject 3 million barrels in coming weeks, he said.  The company estimates it will begin taking receipts and delivering oil via the line in mid- to late-January, a bulletin showed. The link ending at Port Arthur, Texas, will have a capacity of 700,000 barrels a day. 

Hedge funds boosted bullish bets on WTI in the week ended Dec. 3 by the most since July as economic growth accelerated in the U.S. Money managers increased net-long positions, or wagers on rising prices, by 7.8% to 246,661 futures and options combined, U.S. Commodity Futures Trading Commission data show on Dec. 9. 

Daily exports of 11 main grades of North Sea crude for loading in January will increase by 3.4%, according to loading programs obtained by Bloomberg.  Shipments of Brent, Forties, Oseberg, Ekofisk, Statfjord, Gullfaks, Alvheim, Aasgard, DUC, Grane and Troll blends will total about 64.1 million barrels, or about 2.07 million barrels a day. That compares with about 2 million barrels in revised data for December. The North Sea production is coming back and it should put more supplies in the marketplace. That's going to pressure Brent. The Brent-WTI spread continues to come in.

Implied volatility for at-the-money WTI options expiring in February was 16.2%, little changed from 16.1% on Dec. 6, data compiled by Bloomberg showed.  Dow says that while November's growth was slightly lower than October's increase, it added to positive sentiment generated over the weekend when the world's second-largest economy in November posted its largest trade surplus in nearly five years.

We also have Fed rumblings and gold and silver looks like it is trying for another bottom. The International Monetary Fund is calling for tighter global monetary policies, a fact that may slow stocks and boost metals. While initially rising rates is bearish on gold, the one-way trade in stocks may end. Charts are looking like a bottoming attempt! Heating oil is popping up as cold temperatures are looking to stay.   

In the Ukraine, things are taking a turn for the worst. The government is cracking down on pro-democracy protestors. Bloomberg reports that the European Union's foreign policy chief is heading to Ukraine after police raided the main opposition party headquarters and tore down barricades erected by protesters calling for President Viktor Yanukovych to quit.

Around 1,000 demonstrators held out for a 20th day in the city center amid snow showers and freezing temperatures, with an overnight low of minus 7 Celsius (18 Fahrenheit). Emotions flared after hundreds of officers pushed activists away from their make-shift blockades and tent encampments in Kiev and stormed the offices of jailed former Prime Minister Yulia Tymoshenko's party yesterday and early this morning.

A day after youths toppled a statue of Vladimir Lenin, the prosecutor general warned activists not to "test the patience of authorities." More than 200 policemen in riot gear tore down barriers near government offices yesterday and pushed protesters toward Independence Square. Hundreds more police marched with metal riot shields to drive activists away from barricades near the president's office, injuring three, at about 4 a.m. this morning, according to a Bloomberg reporter on the scene.

The pressure on demonstrators raised fears of a repeat of clashes that injured 400 people on Dec. 1, when riot police broke up a protest encampment. Anger over that crackdown helped draw hundreds of thousands of Ukrainians to Kiev on Dec. 8 for the country's biggest rally in almost a decade.

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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