Redefining crude oil

Brent crude (NYMEX:SCN14) caved against WTI (NYMEX:CLN14) as the market was trying to adjust to the reality that the United States is going to be exporting more volumes of crude oil condensate, something that really has been happening in a way anyway.

U.S. exports of high quality and highly volatile shale oil are showing that shale oil is redefining what crude oil is and making the linen blur as to just what is crude-oil and what really falls under the 1970's U.S. Crude oil export ban. The oil that is coming out of Eagle Ford crude is mainly ultralight oil that is really almost like gas and is highly volatile.

In fact coming out of the ground is so pure that you can almost put it in your gas tank when it comes out of the ground. Refiners really just need to stabilize the oil and technically it has been "refined" and now can be exported out of the country. The Big U.S. refineries are not really set up to refine what is called condensate. This is a very pure 'high gravity" crude and most Us Refiners are set up to refine heavier grades of crude oil. Many refiners take this condensate and mix it with heavier grades to make it work but it is not the best way to use this crude.

What most have been doing is lightly tweaking the crude and going through the motions to make it ok to export. What the companies like pioneer Natural Resources Co. and Enterprise Products Partners LP asking the Commerce Department is to basically relax the rules so the charade of not exporting the condensate ends.

The news brought back the Brent crude versus the WTI as European Refiners would be best equipped to use that crude. The fear that that would increase gas prices here in the US are unfounded as gas prices are still tied to Brent Crude more or less. Besides an abundance of light crude in Europe would mean more product that a lot would most likely end up in New York Harbor anyway.

Yet in the near term oil's fortunes may be tied up with what happens in Iraq. Reports that the ISIS insurgents are getting closer to Bagdad could rattle markets. While the oil market has been relatively calm about Iraq as exports from the south surge, the fall of Bagdad might take away that comfort.

In the Ukraine the ceasefire is shaky and the market is waiting to see if the Russian separatists embrace a peace plan, If they do not the fighting will resume putting supply of European natural gas at risk. Natural gas (NYMEX:NGN14) report that we expect we will see a 107 injection into inventory. If we fail to get a triple digit injection, look for a big upside pop! 

Gold (COMEX:GCN14) prices are pulling back a bit but still seem to be in break-out mode. With bad data out of the US and yields falling again the odds that the Fed will be keeping rates lower longer is pricing that into the market.

Cattle (CME:LEQ14) and feeders (CME:GFQ14) do not quit! Drover's Cattle Network warned that the precipitation that we had in the Southern Plains over the last couple of weeks  led to reduced cow slaughter  that will remain till the second quarter and beyond if there is sufficient follow-up precipitation. Despite what appear to be weakening corn prices and still-positive feeding margins, cattle feeders are caught between steady-to-stronger feeder cattle prices already at record levels and fed cattle prices that are moving erratically higher at a slower pace than feeder cattle prices are increasing.

Steer and heifer slaughter is currently below previous expectations for this point in time, but could increase into summer as the year-over-year larger numbers of cattle placed on feed during the 4th quarter 2013 begin to reach market finish. Based on recent and current feeder cattle and corn prices and even with the recent jump in fed cattle prices, red ink could reappear for cattle feeders later this summer.    

 
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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