Rising tide of crude calms the oil market

Rising Tide!

A rising tide of oil inventory is calming the oil market in a scary world. Word that Ukraine would restart an offensive against pro-Russian militants after the apparent torture and killing of a politician from the loyalist party. West Texas crude fell against Brent crude as inventories in the U.S. hover close to record highs. Add to that weak manufacturing data in China is not exactly signaling strong oil demand growth.

The Associared Press reported that Factory activity in China shrank for the fourth straight month in April, though the decline was slightly slower, a survey on Wednesday said, is a possible sign the slowdown in the world's No. 2 economy is stabilizing. The preliminary version of HSBC's purchasing managers' index edged up 48.3 from March's 48.0 on a 100-point scale on which numbers above 50 indicate expansion. The report said output and new orders decreased at a slower rate. However, new orders for customers in export markets overseas shrank after expanding the previous month. 

The American Petroleum Institute reported that US crude oil inventories rose by 519,000 barrels last week. That adds to the record supply in the Gulf Coast oil inventories according to the Energy Information administration, 207.2 million barrels on 11 April, a record high. Over all stocks in the country are approaching all-time highs as reported by Reuters, after building 10 million barrels in the week ending April 11 they reached 394 million barrels, close to the record 398 million barrels hit last year.

Surging U.S. crude (NYMEX:CLK14) production which stayed steady at an impressive 8.04 million barrels a day as well as the reversal of Seaway and the TransCanada's Pipeline, and a seasonal drop in crude oil inputs is providing cushion to the market and a sense of stability.

Gasoline inventories which are at the lowest level since 2011 continue to fall. The API reported that Gas inventories fell by 3.39 million barrels due to the summer blend switch and healthy exports. Distillate on the other hand increased. Distillate demand should stay strong as US farmers start to plant the U.S. grain crop. Refining runs came in at 89.8% of capacity. Imports fell by 201,000 million barrels.

Nat gas (NYMEX:HPK14) inventories are behind the eight ball. This week guesses on injections are ranging early from 25 to 57 Bcf. Either way a far cry from where we need to be. This market is a tinder box and while we are overbought technically fundamentally we are still very bullish.

Coffee is (NYBOT:KCK14) crazy again as a report provided us a glimpse of a dismal coffee crop. Coffee hit a 26 month high Volcafe Ltd., a unit of commodities trade house ED&F Man Holdings Ltd., said it expects Brazil to produce 45.5 million 60-kilogram bags of coffee, down 11% from its January estimate. Dow Jones sad that Volcafe changed its forecast after surveying fields Arabica coffee for delivery in July jumped 7.1% to end at $2.1340 a pound, the highest settlement since Feb. 10, 2012, on the ICE Futures U.S. exchange. May-delivery coffee gained 7.7% to settle at $2.1180 a pound.

Sugar (NYBOT:SBK14) was higher as well. July raw sugar rose 0.5% to settle at 17.62 cents a pound, the highest for the most-active contract since March 31. At least we got a slight break on cream as milk futures settled a bit lower. Daily Heard management reports that Near-historic high milk prices are improving dairy producers' balance sheets. Breakeven prices for dairies in Southern Idaho and Washington are estimated between $17-$18/cwt. Current strong markets follow a healthy 2013, where Northwest FCS relationship managers' analyses reveal average dairy profits between $1.00-$1.25/cwt.

Priorities for dairies' reinvestment include rebuilding balance sheets, completing deferred maintenance and purchasing farm ground to control feed supplies. However, relatively high agricultural real estate prices are creating pause in some Northwest dairies' decisions, where careful analysis precedes farm ground purchases. Few dairies express immediate interest in expansion.


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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