At what point does the situation in Ukraine start to become bearish for oil (NYMEX:CLM14). Saudi Arbia's oil Minister Ali Naimi said that the kingdom was ready to pump more oil to make up for any shortfall from Russia. This comes after Gazprom gives the Ukraine and the rest of Europe to pay up for gas or else.
In the Meantime such a threat may cause a massive release from global strategic reserves that could flood an already well supplied market with a flood of crude. Of course most traders realize we may have to live through the initial price spike before traders are able to be calmed down to the promise of more supply.
Gazprom is again threatening Ukraine to pay up or else. The Russian state owned company says that they will cut off gas to Ukraine on June 3 unless the country starts paying for the fuel in advance. The final bill must be paid by June second.
Dow Jones reports that Gazprom said that "Ukraine's Naftogaz has to pay $3.508 billion by June 2, before Russia switches to prepayment system on June 3. Ukraine only partly acknowledges this debt, saying the bill for the last month should be calculated based on the old price of $268.5 per 1,000 cubic meters, rather than under a new April price of $485.50 per 1,000 cubic meters."
This is obvious, resources being used as a political weapon to try to get Ukraine loyalists to crack and submit to the will of the Russian President. The Russian President that found new interest in the Ukraine when foreign oil companies showed interest in their shale and off shore energy resources. Ukraine was becoming a threat to the Russian economy because if there were too lose their dependence on Russia for oil and gas than Europe would as well.
Oil may slow out of mixed demand signals from China. Despite upping oil imports in April their factory production fell. China Factory output expanded 8.7 percent in April in annual terms, China's statistics bureau said today, down from March's 8.8 percent and below the 8.9 percent median estimate of analysts surveyed by Bloomberg News.
Natural Gas (NYMEX:HPM14) is retreating as some cool forecasts are rating hopes that injections into storage will exceed expectations. Yet because of the sharp drop and the precarious amount of supply we have currently in storage one might have to believe that this market is getting overdone to the downside. While we are vulnerable to some father selling, this weakness may be an excellent time to establish bullish strategies going out throughout the summer.
In fact this reminds me of the pre winter sell-off last November when the Natural gas market took a hit on long term forecasts for a warm winter. We all know how that turned out. There are still significant risks for big price spikes if the weather starts to bring into question whether we can produce 30% above the record 5 year average and get supply up to snuff ahead of next winter.
Gold (COMEX:GCM14) and silver (COMEX:SIM14) popped on the Ukraine and India election hopes. There are reports that the physical market demand is improving. Still the inability to follow through with upside momentum means we may see more choppy action before what I think will be a long term bottom.