Oil supply drop shock

Are they serious? Oil supply according to the Energy Information Administration plunged 7.7 million barrels as supply in the Gulf Coast seemed to evaporate. The drawdown stunned the market that has grown to expect disappearing stocks at the end of the year but not right after it. Not even a 6.2 million barrel build in gasoline stockpiles could get the market to ignore the crude draw and has many people trying to figure out why supply in the Gulf Coast seems to be evaporating. U.S. crude-oil imports fell below 7 million barrels a day for only the second time in 14 years hitting 6.86 million on Dec. 6, the lowest level since Jan. 28, 2000. Imports averaged 9.35 million in the past 10 years. The massive draw came even after U.S. oil production climbed to 8.16 million barrels a day last week, the highest level since July 1988 and oil production surpassed imports in October for the first time since 1995.

Well whatever the reason that should change soon as TransCanada Corp will start its 700,000-barrel-per-day Gulf Coast crude oil pipeline project in the next week or so. The pipeline linking Cushing, Oklahoma, to Port Arthur, Texas, is to start pumping around Jan. 22.  Perhaps they were making room for the expected influx of Keystone piped in oil as the southern leg of the Keystone XL line will take oil from Cushing to refineries on the Gulf Coast.

 Distillate stocks, which include heating oil and diesel fuel, actually fell by 1 million barrels to 124 million barrels as it seems that the cold weather had a larger impact on demand than apathetic market watchers had anticipated. That brought supply below the five year average and heated up the ultra-low sulfur diesel market. 

The weather also seemed to slow down the refiners as runs fell 2.3 percentage points to 90% of capacity a much bigger drop than expected. The weather impact on the numbers should not be exaggerated.

Today we will see if the expectation for a record natural gas withdrawal is exaggerated. Expectations that demand will hit a record high while freeze offs slowed production. The market is pricing in a whopper 303 bcf withdrawals. Anything higher that 303 should allow the market to break-out to the upside, if we fail to see 300 or more, look out for a break-down.

BP is out with their oil forecast and it is a far cry from the dire reports of dwindling supply that they used to put out. BP says that the shale oil and gas revelation in the United States will shrink the global market for global oil and natural gas trade. The United States will become independent and, with Europe and Asia set to be the only two major oil and gas importing regions by 2035.

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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