Saudi Arabia raised its selling price for crude oil in what could be like a mission accomplished banner in the OPEC oil production war. The state owned Saudi Aramco raised its Asian prices for Saudi light oil delivery in April by $1.40 a barrel and its U.S. prices by $1 a barrel. It seems that the Saudis feel they have some pricing power as demand is improving and should continue to improve for seasonal and macro-economic reasons. With over half the world juicing up the economy with quantitative easing and rate cuts the Saudis must expect the demand outlook to continue to improve.
The latest country to cut rates was India. The Reserve Bank of India has cut its key interest rate for the second time this year. They lowered its repo rate by 25 basis points to 7.5%. This aggressive move should mean more oil demand at some point and we may be seeing that demand uptick already.
Oil prices also got support from reports of more violence in Libya. The BBC reports that Islamist militants are reported to have seized two oil fields in central Libya, as rival groups fight for control of the country. Forces guarding the Bahi and Mabruk sites retreated after running out of ammunition. It is not clear which group seized the oil fields. Even with the violence the country's output is still better than it was.
Last night the American Petroleum Institute (API) should have eased concerns about storage capacity by reporting only a modest 2.9 million barrel build in supply. In the key Cushing, Okla., delivery point, supply increased by only 1.2 million barrels, which was lower than anticipated. Gasoline stocks were a bit negative as supply increased modestly. The API reported that supply increased by 530,000 barrels. Distillates were not much of a surprise coming down 2.96 million barrels. Add to that better demand globally and the dire predictions of full oil storage look less likely.
Today could be a big day. With hedge funds near record short positons, a bullish Energy Information Administration report could cause a big short covering rally. Keep an eye on the Cushing number. If it comes out less than 1.2 million barrels it could set off a big rally. Assuming of course the product demand numbers are fairly solid.
