Labor Day oil rally

Rising risks of conflict in Ukraine and deflation in Europe and the lack of a U.S. strategy against ISIS is setting off a crude oil (NYMEX:CLV14) rally.

Strong GDP data in the United States is a sharp contrast to the economic struggles in Europe that are only going to get worse if there are more sanctions on Russia. Euro zone inflation rose 0.3% as unemployment in the zone is at 11.5%. We saw those worries play out in the Brent versus West Texas Intermediate spread (WTI) spread as the WTI gained on Brent because of increased demand expectations out of the United States versus lower demand expectations out of Europe.

Brent crude (NYMEX:SCV14) oil also was pressured as Libya is starting to export oil again after almost a year of delays because of Libyan rebels. The tankers filled with light Libyan crude putting further pressure on the spread.
 

Yet leave it to Vladimir Putin to act up on a U.S. holiday weekend. Putin says that the Russian and the Ukrainians is one people. Reports from Ukraine that Russian troops have invaded the country are raising fears that a deal to keep natural gas flowing to Europe may be less likely. That may cause more buying of diesel or gas oil ahead of winter.

President Obama has a strategy against Russia but not ISIS. He has a strategy of taking military force off the table against Russia yet has no strategy against ISIS. It seems that the President is sending a signal of American weakness which obviously increases the threat to oil supply down the road. We are seeing a seasonal bottom being put in the petroleum complex helped along by outside forces.

Gasoline (NYMEX:RBU14) prices going into the Labor Day holiday weekend are at the lowest level since 2010 yet in Chicago a fire at the BP Whiting Refinery gives us a jolt. Wholesale gasoline prices jumped in Chicago by as much as 5 cents a gallon after an explosion and fire rocked Indiana nehborhoods just past the Chicago border. While BP said the fire was extinguished and it expects little impact on production the prices in Chicago jumped anyway as wholesale buyers want to make sure they have supply for the holiday weekend.

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