Oil demand expectations bring Brent-WTI spread back in line

Brent Crude-WTI Unwind

Brent crude is falling back and WTI (NYMEX:CLG14) is rising as North Sea production starts to hum and hopes that we may see some supply out of Libya. This comes against a backdrop of falling U.S. supply as reported by the American Petroleum Institute despite a slight increase at Cushing, Okla. Refiners reigned in record refinery runs as products continue to build, and the rebounding U.S. stock market is once again raising demand expectations that were shaken after a weak jobs report. The oil market still is oversold and not sure whether it should view bad data as bullish or bearish as it may slow the pace a tapering.

Yet a strong commitment to tapering was laid out by from Dallas President Richard Fisher and Philadelphia President Charles Plosser basically reaffirming that the Fed planned to taper as expected turned oil’s focus back to demand. On top of that the World Bank raised its global growth forecast predicting that the world economy will expand by 3.2% this year, compared with a June projection of 3% and up from 2.4% in 2013.

Natural gas (NYMEX:NGG14) has risen almost 10% from the correction and is now hitting major resistance. The market is pricing in another Artic blast and waiting on what should be a record storage withdrawal. In the meantime, supplies could plunge to almost 15% below the five-year average.

Bloomberg News is reporting that recent railroad accidents are increasing the chances President Barack Obama will approve the Keystone XL pipeline from Canada, said Senator John Hoeven, a North Dakota Republican. Hoeven, who supports TransCanada Corp.'s proposed link between Alberta's oil sands and U.S. Gulf Coast refineries, today said the debate is starting to swing back and put "more pressure on him to approve" the pipeline.  Accidents like the explosion of a BNSF Railway Co. train hauling oil tanker cars about 25 miles west of Fargo, North Dakota, forcing the evacuation of a nearby town, shows more pipelines are needed to safely carry the rising production of U.S. oil to market, Hoeven said. This comes after a blockbuster Wall Street Journal piece that says that we are not prepared for the possibility of more train explosions. The Journal says "Every day, a train more than a mile long travels alongside a highway in Albany, N.Y., a half-mile from the state capitol building and even closer to houses. Its cargo is crude oil from North Dakota, which federal regulators and railroads fear is more explosive than other oils.

In the past year, Albany has become an unlikely hub for the U.S. oil business, taking in shipments by rail and sending them out by ship down the Hudson River to refineries. Now officials there are trying to get up to speed on how to handle a potential oil-train accident, as are their peers from Chicago to Denver to New Orleans. Railroad officials don't like to talk about it, but oil trains are rumbling through many large cities because of surging output from North Dakota's Bakken shale. Functioning as pipelines on rails, tanker cars full of oil pass through Detroit, Philadelphia, Toronto, St. Louis, Kansas City and Houston, among others.

Bakken crude, which has been involved in three major explosions after rail accidents in the past seven months, is traveling to every corner of the country: West into Washington state and then south to refineries near Los Angeles; south to Gulf Coast refiners; north into Canada; and east to refineries in New Jersey and Philadelphia. Railroads and oil shippers wouldn't detail oil-train movements through their networks, citing security concerns. The Wall Street Journal identified routes through investor presentations and industry marketing material, as well as interviews with industry officials and experts.

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