A surge in U.S. oil (NYMEX:CLK14) supply brought a sense of calm to the oil risk premium but based upon spreads the market is still worried about Ukraine. High-level talks are taking place in Geneva to try to find a peaceful resolution to the crisis. While Russian President Vladimir Putin speaks with inflammatory rhetoric there were some reported deaths of Russian separatists. Dow Jones reported "Russian President Vladimir Putin on Thursday accused the Kiev government of committing "a serious crime" by sending in troops to quell unrest in Ukraine's east, as a clash overnight left three pro-Russian protesters dead and 13 wounded. Ukraine has accused Russia of sending agents into the region to foment unrest, but Mr. Putin insisted that Russia has no forces present in the country." The stakes are high and the weekend will be long so it will be interesting to gage how the market will price the risk when it knows that whatever they decide will be locked in until trading once again begins.
In a normal day the story would have been about the Energy Information Administration supply report and the fact that U.S. oil production hit the highest level since the 1980's. A 10 million barrel plus build the largest since 2001 caused the West Texas intermediate to back off and even brought down the Brent crude yet the risk spreads still widened. The Brent crude stayed stronger despite hopes for a return of Libyan oil back to the market.
The impact of U.S. oil producing over 8.3 million, the most since April 1988 was clear and is raising the question how refiners can take better advantage of this high yielding pure crude oil. Refiners ran at an impressive 88.8 percent which was up 1.3 percentage points from the last week and the highest level since January. Yet despite that effort a distillate inventory fell 1.28 million barrels to 111.9 million last week and gasoline stockpiles dropped 154,000 barrels to 210.3 million. Demand has been strong. Diesel demand should start too sure as farmers look to get in the field assuming the weather starts to warm and dry up. Gas demand while dropping last week has been strong on the four week average.
Ethanol production also came roaring back rising 43,000 barrels per day hitting 93,000 barrels the highest weekly grind since early December. Soybeans (NYBOT:JSK14) also hit a 10 month high still riding the near record soybean-crush.
Natural Gas will take the Stage as the EIA reports its weekly supply report. The market is looking for an injection that should come in around 33. We need to see a sign that producers are ramping up production in a big way or nerves will start to set in. Look to buy calls!