"What me worry," says Chinese official

Oil Contradictions!

The petroleum market is still caught between trying to weigh weather related demand and geopolitical risk against signs economies around the globe may be starting to sputter. Overnight the interim Ukrainian President Oleksander Turchinov, has announced that he is the Supreme Leader of Ukraine Military and vowed to protect investors’ money in the bank. He also dismantled a police riot division that is being blamed for carrying out orders of murder from the toppled president Viktor Yanukovych. Yet assurances from Russia that they will not raise or cut off gas supply are making the trade feel a little less frantic.

Add to that a disappointing U.S. consumer confidence and worries about the Chinese Economy is weighing on demand expectations. Nothing to see here so keep on moving. The Financial Times reports that China says that the sell-off in the renminbi is a reflection of market forces and should not be over-interpreted. The State Administration of Foreign Exchange, an agency under the central bank, did not acknowledge its role in guiding the currency. “The recent movement of the renminbi exchange rate is the result of market players adjusting their near-term renminbi trading strategies,” it said on Wednesday. It added that the currency’s movement was nothing unusual: “The degree of exchange rate volatility is normal by the standards of developed and emerging markets. There is no need to over-interpret it.” Yet at the same time Bloomberg Reports that China’s credit-market gauges are triggering alarm bells, as banks grow cautious in lending to each other while investors prefer the safest government bonds.

The spread between the two-year sovereign yield and the similar-maturity interest-rate swap, a gauge of financial stress, reached 121 basis points on Feb. 19, the widest in Bloomberg data going back to 2007. Two days later, the cost to lock in the three-month Shanghai interbank offered rate for one year reached an eight-month high of 94 basis points over similar contracts based on repurchase agreements, which are considered safer because they involve government securities as collateral.

Yet traders are worried. But on the other hand reports that China’s crude imports are forecast to increase at the fastest pace in four years as oil demand in the world’s second-largest economy accelerates and additional storage tanks are filled.  China, which consumes more oil than any country except the U.S., may boost net imports to 6.02 million barrels a day, according to the median estimate in a Bloomberg News survey of seven analysts and refiners conducted from Feb. 20 to today. That would be about 7% more than 5.63 million last year, signaling the biggest expansion since 2010.  Net imports of crude will rise by 380,000 barrels a day to 6.08 million in 2014, Wech forecasts. Imports alone surged to a record for a second month in January to 28.5 million metric tons, or about 6.66 million barrels a day, data from the General Administration of Customs in Beijing show. “Steady growth” in demand briefly led China to become the world’s largest net oil importer, surpassing the U.S. in September, the Energy Information Administration in Washington said in October. This trend will continue through 2014, predicted the Energy Department’s statistical unit.

Reuters reports that U.S. crude inventories rose last week, while gasoline and distillate stocks fell, data from industry group the American Petroleum Institute showed on Tuesday. Crude inventories rose by 822,000 barrels in the week to Feb. 21 to 363.3 million, compared with analysts’ expectations for an increase of 1.2 million barrels. Crude stocks at the Cushing, Ok. delivery hub fell by 1.1 million barrels, API said. Refinery crude runs rose by 110,000 barrels per day, API data showed. Gasoline stocks fell by 314,000 barrels, compared with analysts’ expectations in a Reuter’s poll for a 1-million-barrel decline. Distillate fuels stockpiles, which include diesel and heating oil, fell by 693,000 barrels, compared with expectations for a 1.2 million-barrel drop, the API data showed. U.S. crude imports fell last week by 200,000 barrels per day to 7.1 million bpd.

Reuter’s reports that U.S. lawmakers are expected to question regulators and rail industry officials on Wednesday about several recent fiery derailments, focusing on whether shipments from energy producing regions such as North Dakota’s Bakken area are being handled safely. A subcommittee of the House of Representatives’ Transportation Committee will hear from the officials with the rail and oil sectors as well as U.S. Department of Transportation officials who are responsible for safe shipments.

Gold continues its run with the best start to any year since 1983. Gold has defied what has been traditionally a weak month for gold as the market looks to regain its stature after it was bashed by the market for all of the wrong reasons. Sellers of gold last year are making it that many really don’t have a handle on the fundamentals that drive gold. Problems in China and India and weak economic data have investors looking back to gold to protect their portfolios. The BITCON blowup may have more spec money move back into the more traditional safe haven and currency uncertainty and that of course is gold. The charts look very bullish and bears are on the run! Many gold bashers will have to eat their words as gold could regain its record high before the end of the year.

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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