Oil prices finally breaking as global supply jitters start to ease

Oil prices are finally breaking as global supply jitters start to ease. A reported deal with the Libyan government and the Libyan rebels could add close to 600,000 barrels of light crude back into the global marketplace. The break in the Brent crude and the tightening of the spread with the West Texas Intermediate contract may have also been influenced by the weekly petroleum data from the Energy Information Administration. Yet the market has to be on guard from more worries about Russia. Gazprom is expressing concerns about the depletion of Ukrainian natural gasl (NYMEX:HPK14) inventories. This could lead to charges of theft and give them an excuse to cut off supply. This comes the day after Gazprom talked about the importance as remaining a reliable soldiers to Europe.

As I expected, the shutdown of the Houston Shipping channel had a big impact on the weekly supply. The EIA reported that U.S. commercial crude oi (NYMEX:CLK14) inventories fell 2.4 million barrels from the previous week. This came as crude oil imports plunged by 786,000 barrels because of the Channel closure. The market still moved lower because most traders now realize that at 380.1 million barrels supplies are still ample and more than likely we will see those supplies that were stuck in the Houston Shipping Channel show up in the coming weeks. Still the combination of lower supplies than anticipated and more potential supply out of Libya has tightened the spread to around a $5.00 premium Brent.

Yet at the same time U.S. refiners surprised on the upside increasing runs. The EIA said that crude oil refinery inputs increased to 15.3 and they operated at 87.7% of their operable capacity last week. Very impassive considering that we are in shoulder season and some refineries cut back production because of the inability to get oil out of the Houston Shipping Channel.

Yet in the big picture we are becoming less reliant on oil imports every day. The EIA reported that total U.S. net imports of energy, measured in terms of energy content, declined in 2013 to their lowest level in more than two decades. Growth in the production of oil and natural gas displaced imports and supported increased petroleum product exports, driving most of the decline. A large drop in energy imports together with a smaller increase in energy exports led to a 19% decrease in net energy imports from 2012 to 2013. Total energy imports declined faster—down 9% from 2012 to 2013—than in the previous year, while export growth slowed. Crude oil production grew 15%, about the same pace as in 2012, which led imports of crude oil to decrease by 12%, accounting for much of the overall decline in imports. Total U.S. primary energy consumption increased 2.4% after declining in 2011 and 2012, with renewable energy providing the largest percentage increase. 

The EIA gave us a break in ethanol after it showed that supply increased by 222,000 barrels. After a break in corn and a key reversal we saw the biggest break in price since 2006. Of course we are coming from the highest price levels we have seen in years. Reuters reported that ethanol futures fell as much as 11.6 percent on Wednesday, breaking a three-month trend of steep growth, after government data showed stocks and production rose last week and imports of the fuel resumed for the first time in half a year. Ethanol futures had risen over 60 percent since the start of the year, mainly on logistical problems in transporting it to Gulf Coast refineries and the East Coast pricing hub as well as seasonally low stocks. But for some, the increases were overblown. EIA data issued on Wednesday showed stocks of ethanol had increased by 222,000 barrels to 15.9 million barrels in the week ending March 28. Imports amounted to just 11,000 barrels per day (bpd) and were the first since the week ending Oct. 4.

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