Crude oil deals with 83-year high supply

War Games!

After Russia amassed troops by the Ukraine Border, the Ukraine government halted its offensive but it was not enough to ease all the tensions and the risk premium in the markets. Precious metals did an about face and the risk on trade in oil came back and overnight the markets are trying to find out whether we are closer or further away from the brink of disaster. Ukraine's foreign minister Andrey Deshchytisa said that Russia's decision to launch the military exercises "very much escalates the situation in the region. We will now fight with Russian troops if ... they invade Ukraine," he said. "The Ukrainian people and Ukrainian army are ready to do this. Ukraine will confront Russia. We will defend our land."

We know one thing for sure, this is not helping the Russian economy. Russia's Foreign Minister Sergey Lavrov seemed to want to ease tensions after Secretary of State John Kerry said the US and the world's community was prepared to act. Russia's foreign minister says a deal has been made with Ukraine, the US and the European Union to de-escalate tensions in the former Soviet republic. 

That led to a break in oil overnight. Yet a consensus in Europe on just how to act may mean the US may have to go it alone if it wants to impose new sanctions. Russia is junk according to S&P. S&P downgraded Friday Russia's foreign currency rating to one notch above "junk" status to 'BBB-/A-3' from 'BBB/A-2'. In response the Russian central bank hiked its key interest rate to 7.5%.

Oil (NYMEX:CLM14) also is dealing with supply at an 83 year high against concerns about having to supply global markets. Brent (NYMEX:COM14) crude is getting support not only from the tensions in Ukraine but also from supply disruptions. The AP reports that Shell Nigeria s Forcados oil export terminal remains closed, seven weeks after it was shut down to repair a sabotaged undersea pipeline. Militants claimed responsibility. There are growing concerns in energy markets about supplies from the world's 13th largest producer but Shell won't say how much oil is not being exported. The government says oil thefts averaged 300,000 barrels a day and cost $12 billion last year. Shell closed the terminal March 4 to repair a leak on an undersea pipeline. Niger Delta militants claimed the sabotage and said March 27 that scuba divers had further damaged repair work.

Oil and products are getting moved back and forth on tensions as petroleum product options expire. RBOB gasoline futures hit the highest level since last August before pulling back in what might be the seasonal peak.

Natural Gas (NYMEX:HPM14) bears may have won the battle but are still losing the war. The Energy Information Administration reported that working natural gas in gas in storage increased 49 bcf bringing the total to 899 Bcf. While the injection was higher than the average guess supply is still 831 Bcf less than last year at this time and 1,008 Bcf below the 5-year average of 1,907 Bcf. That is 52.9% below the five year average. While production is higher this number was not strong enough to give us confidence that storage will be refilled at this rate. We have to constantly put away almost 89bcf every week to get us back to where we need to be.

A falling Chinese currency seems to coincide with strength in industrial metals. Platinum and palladium seem to be getting support from Russian and Ukraine tensions! Options expire!

 
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.

 

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