Looking for oil in all the wrong places

Breaking News: Thousands of gallons of oil spill in L.A. after a pipe burst!

Looking for oil in all the wrong places--looking for oil trying to find any traces.

Don't look at Cushing but look at the Gulf Coast. Despite the highest production in over a quarter of a century and inventories just below record highs there were worries about a squeeze on deliveries on WTI (NYMEX:CLM14). U.S. crude production hit a 28-year high last week yet the Energy Information Administration report showed supplies at Cushing, the delivery point for WTI, fell 592,000 barrels. That was the 14th drawdown in 15 weeks. Inventories fell 592,000 barrels last week to 23.4 million, the lowest level since Dec. 5, 2008.

You can see the Nymex delivery point in Cushing Oklahoma is draining faster than a popped kiddie pool was raising concerns about deliverable supply. So much so that Gary Morsches, managing director of energy products at CME Group reassured the market that there is "plenty of storage to ensure convergence all around that physical marketplace and that despite declining crude inventories at Cushing, Oklahoma there are sufficient to be delivered against West Texas Intermediate futures." Morsches says at Platt's Global Crude Oil Summit as reported by Bloomberg.

In the meantime this is another example of how the complexities of the oil market are changing as this ultra-light oil is starting to dominate the U.S. Gulf Coast market. 

Light Louisiana sweet crude on the other hand is coming down dramatically. The premium over the WTI has come in and has fallen further below the competing Brent crude contract. While Cushing empties the Gulf Coast is swimming in it and it is making the case that US oil exports might be the best way to help balance the global market. Inventories along the Gulf Coast increased by 2.33 million barrels last barrels last week to 215.7 million, the most in EIA data going back to 1990. 

Oil is being supported by the draw in Cushing and worries about the Ukraine but also because of strong product demand. Total gasoline inventories decreased by 800,000 barrels last week, and they remain in the middle of the five-year average range. Total motor gasoline supplied averaged 8.8 million barrels a day over the past four weeks, up about 3.2% over the same period a year ago. Distillate inventories slipped by 1.1 million barrels last week and remain below the lower limit of the average range. Distillate product supplied averaged 4.1 million barrels a day over the past four weeks, up by 12.7% when compared with the same period last year. Distillate production averaged 4.9 million barrels a day last week, about 100,000 barrels a day below the prior week's production. Farmers and exports are giving diesel fuel a lift.

It is Natural Gas (NYMEX:HPM14) injection day! Reuters reports that U.S. utilities likely put 99 billion cubic feet of natural gas into underground storage caverns last week as utilities struggled to rebuild heating supplies before next winter. A 99-bcf injection for the week ended May 9 would match the level seen in the same week last year and exceed the five-year average build of 82 bcf. May is traditionally the biggest month for stock builds and additions over the last three weeks have exceeded analysts' expectations. Utilities have stockpiled 229 bcf of gas over the last four weeks, compared to 177 bcf in the same period in 2013 and 214 bcf for the five-year average. 

Still with weather forecasts looking to turn warmer than normal in the later part of this month, we still have a long way to go to get to a comfortable storage level ahead of next winter. We may see the market start refocusing on the big picture after this weekly report.

Silver (NYMEX:SIM14showed some life yesterday in part for the hopes for more demand. Tatyana Shumsky, of Dow Jones, reported that "Global investment demand for silver rebounded to a record high in 2013 as lower prices lured investors to purchase silver coins and bars, industry body The Silver Institute and metals consultancy Thomson Reuters GFMS said in their 2014 World Silver Survey. 

Investment demand for coins and bars rose 76% to a record 245.6 million troy ounces last year, up from 139.3 million in 2012, the report said. Total investment, which includes bar, coin and medal purchases as well as physical silver held by exchange-traded funds, rose 27% to a three-year high of 247.2 million ounces in 2013.

She also brought up gold and how the Indian election might see a lifting of import tariffs which had depressed gold demand and created a black market for the metal.

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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