Time for crude correction

Correction Time

Geopolitical and macro-economic worries are starting to take its toll on markets as we get the big jobs report.

Weakening demand for U.S. crude oil (NYMEX:CLU14) and products might have been an early warning sign to stock traders that wiped out all of the years gains on a slew of fears that ranged from the Argentina default, tanking shares in Portugal's Banco Espirito Santo after they reported a big loss, sanctions on Russia that will take a toll on global economic growth.

We also saw overnight that U.K. manufacturing growth slowed more than expected to its weakest rate in a year in July. The UK manufacturing purchasing managers index dropped to 55.4 from 57.2 in June, the lowest reading since July last year, data firm Markit and the Chartered Institute of Purchasing and Supply said as reported by Dow Jones. That offset China's official manufacturing purchasing managers' index climbed to 51.7 for July, up from 51 in June and exceeding the 51.4 median estimate of economists surveyed by Bloomberg. The final reading on the HSBC Holdings Plc/Markit Economics China factory PMI was 51.7, missing estimates for it to match the preliminary reading of 52, an 18-month high as reported by Bloomberg.

On top of that a report that the 115,000-barrel-per-day refinery in Coffeyville, Kan., might be shut for as long as four weeks after a fire in a gasoline-related unit on Tuesday lowered oil demand expectations as the refinery is a major consumer of benchmark West Texas Intermediate crude. This should help us rebuild stocks in the Cushing, Oklahoma, that have fallen earlier this summer to six-year lows. Lower runs should mean that we will see rebound in crude stocks as we move closer to maintenance season.

That helped the Brent (NYMEX:SCU14) over WTI spread. Maintence in the North Sea and Geopolitical risk is offer Brent some support against weakening demand expectations. Dow Jones reports the reopening of Libyan oil fields and ports this month has been a key factor behind a steady fall in international oil prices recently, with U.S. prices falling to a four-month low on Thursday. But markets may be overlooking resurgent risks to the North African country's oil supply.

Dow says that "Over the past week fighting for control of the airport in Tripoli, Libya's capital, has set ablaze part of a storage facility holding 90 million liters (almost 24 million gallons) of oil during the worst violence in the country since the 2011 civil war that led to the downfall of former leader Moammar Gadhafi. The oil tank blazes and fighting in Tripoli and the eastern city of Benghazi have led to "serious doubts" about the safety of Libya's oil fields, Commerzbank commodities analysts said in a note. "The current oil price continues to insufficiently reflect the risks to the oil supply." Commerzbank said.

Natural gas (NYMEX:NGU14) popped after natural gas inventories rose 88 billion cubic feet, to 2.307 trillion of cubic feet still 21% below the five year average. We still have a long way to go on storage and we can't afford any problems. Enter Big Bertha.

Well, it is not big yet and the debate is how big could it become. Reuters news report Tropical Storm Bertha, the second named storm of the 2014 Atlantic Hurricane Season, has formed east of the southern Lesser Antilles, the U.S. National Hurricane Center (NHC) said on Thursday. The storm was located about 275 miles (445 km) east-southeast of Barbados, and about 385 miles (620 km) east-southeast of St. Lucia, with maximum sustained winds of 45 miles per hour (75 kph), the Miami-based weather forecasters said. The storm is moving toward the west-northwest at near 20 miles per hour (31 kph). Right now the track seems to have y tit turn west before it hits the Gulf of Mexico. One forecaster says it has a chance to get to the Gulf but NHC says no.

Stay tuned!

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.

 

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