Deal or No Deal!
Oil Prices (NYMEX:CLN14) are stuck more than likely trying to decide whether or not Ukraine and Russia can cut a deal to keep the gas flowing. Reports that they were close to a deal may be muddied by the violence that we saw in the Ukraine which some say is the worst since the crisis began. Ukraine Billionaire Petro Poroshenko made it clear he views the Russian seperatists as terrorists and will aggressively fight to defend the Ukraine homeland. After seizing control of the airport in the East it is clear that Russia will meet heavy resistance if they continue to try to destabilize Ukraine.
Which brings it back to oil? Oil is in a holding pattern until we know if there will be a cut off in supply. This comes against a backdrop of plunging bond yields and a stock market that only sees one direction and that is up (CME:ESU14). The fear index might as well not exist as U.S. stocks creep higher and higher.
Oil also has to focus on what could become a Cushing crisis. Supplies at the Nymex delivery point are getting dangerously low reflecting the new realities of U.S. crude oil production. Instead of their being a need to bring up oil from the Gulf of Mexico to feed Midwest refineries, now oil is being moved in the opposite direction. The high quality crude oil is changing flow and refining practices and creating the need for different grades of crude to make the refineries run smooth. It is also creating nervousness around the WTI expiration as supply at Cushing fell to the lowest levels 2008. Cushing supply fell to 23.4 million barrels close to its minimum operating level of 20 million barrels. Further drops in supply will raise worries about deliverable supply and potentially create the possibility of a squeeze. While the CME says that there is plenty of deliverable supply there are some that are still worried.
Natural gas (NYMEX:NGN14) rebounded as weather is warming up and more aggressive EPA regulations on coal will increase demand expectations. In the short term the race to refill storage is looking murkier. Natural gas rig operators are actually cutting production at a time when we need all the production we can get due to a lack of pipeline capacity. You can talk all you want inactive wells that might come on line but if you can’t move it through a pipeline there is no point. As we learned last winter not only do you have to produce it you have to move it.
Gasoline (NYMEX:RBN14) still looks like a peak. Demand, I am sure, exceeded expectations as weather was almost perfect. Demand for diesel will ease as farmers will have most of the crop in.
Gold (COMEX:GCN14) got hit in the option expiration as a surging stock market and the lack of fear of any kind. While the stocks soar it is unlikely gold can mount much of a rally but strong physical demand should offer modest support! Yet if the stock market ever corrects and fears return to gold that will be the safe haven of choices as bond yields get crushed.
Grain markets got hit on perfect weather. Not only was it dry enough to plant massive amounts, Mother Nature watered it. It was almost like plating vegetables in the yard.