This is Sparta: Crude oil independence

Am I the only one wondering where President Obama came up with “300” military advisers?

The one thing that you have to say about the effort that the United States is giving to help out the situation in Iraq is that this is what America is like when it’s “oil independent.” There’s not pressure to send in troops or even that Iraq’s largest refinery (330K b/d) is pretty much under rebel rule. I know that there’s a lot of conflicting stories on who has control, but I can’t imagine it’s running with only half staff. What about Union rules? Actually seeing the Baiji refinery losing it’s production might not be a bad thing for the EU.

Considering that Iraq, like Iran, are big gasoline (NYMEX:RBN14) consumers, the EU would benefit from trying to help fill the gap. Part of the problem that EU refiners have had is that they’ve lost the U.S. demand for imports of gasoline. From our glory days in 2007 when we were bringing in 1.4M b/d of gasoline alone, we’ve cut that down to about 550K b/d in 2014.

Of course, that’s just part of the problem with EU refining. There’s that other thing with weaker demand for diesel as they try to get out of their economic slump. Oh, and then of course there’s the damn high cost of brent (NYMEX:SCN14). So, if we follow the bouncing barrel, any disruption to a foreign refinery comes right on back the good old US of A. With the Brent now reaching out to a $9 premium over WTI (NYMEX:CLN14), you can’t beat refining margins here in America. Tell you what Europe, you can keep winning our Oscars, we’ll keep fracking and drilling and cheaper crude for years to come. What might actually start to happen is we see a big kick up in U.S. oil investment. With the choices getting rife with risk over geopolitics (Iraq, Iran, Libya, Syria, etc.), foreign oil companies might have to play like Eddie Murphy and start coming to America.

There’s plenty of action that is brewing south of the U.S. Gulf, but Mexico has it’s own troubles. At least those on the take in Washington, DC have some semblance of discretion. From what I have heard about the areas in Northern Mexico and the local governments there, it’s no different than what one might see in West Africa. Great, pirates in Volkswagen Vanagons. There might be some opportunity in Canada, but it’s all about pipeline, not so much new production. That leaves a lot of land in America left to frack and a U.S. Gulf that has been very quiet. 

Well prior to that, there were a few projects that were coming online or close to discovering reserves. It’s possible that with fewer options for Big Oil to exploit, err...explore, that money comes back to the United States. All that is missing right now is the opportunity to export any crude. At this pace though, it’s getting past the point of the United States providing troops, financial aid, refined products. We’re getting to that point if we’re not going to get serious about their oil, we better get serious about ours. 

 

Crude

I hate to do this so early, but after seeing crude (NYMEX:CLN14) dump hard yesterday, it’s going to be the smart thing to do and switch the chart to August crude (NYMEX:CLQ14). We don’t get expiry until the end of the week, but funds having to exit for position limits has us thinking the volume will now pursue the next contract. We’re going to start with resistance here at 10663, 10752, 10838. We’ll follow that up with support levels down to 10568, 10466 and 10332. We’re also going to move ahead to the next crude spread with CLQ4/CLU4. This looks for support to 78, 69. Resistance turns up to 95, 106. Flat price has the weekend ahead and I think that needs no explanation.

 

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About the Author

Carl Larry is president of Oil Outlooks and Opinions LLC. Follow him on Twitter (@oiloutlooks) or on his website.

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