Back to normal

August 27, 2015 08:33 AM

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Crude oil prices are out of the crisis zone, trading back above $40 a barrel and if it closes above there, it may show that the world may not be falling apart. A combination of the strongest rally on Wall Street since 2011 and a rally in China overnight, on some alleged government stock buying, is setting the stage for a possible bottom in oil.

Oil prices are getting some support, albeit a day late from the Energy Information Administration inventory report that showed a 5.5 million barrel drop in crude supply. It came as imports fell by 839,000 barrels a day.

Yet, a disappointing 1.7 million barrels increase in gas supply raised concerns about demand. Yet, really it was probably more fear about stock market movements that really drove trading sentiment. Fear has driven oil and gas far below what it might have been if fear was not controlling the market place.

Still, crude oil refinery inputs averaged about 16.7 million barrels per day while refineries operated at 94.5% of their operable capacity last week.

Tropical Storm Erica may impact oil imports into the Gulf Next week. The best hurricane forecaster that I know, Dave Tolleris of WX risk, says there is a slight chance that Erica may make it into the Gulf Of Mexico. While he expects it should move up the East Coast, he acknowledges that there is a chance of a Gulf storm and if so this storm could turn into a significant hurricane. The Energy Information Administration says that The Gulf of Mexico area, both onshore and offshore, is one of the most important regions for energy resources and infrastructure. Gulf of Mexico federal offshore oil production accounts for 17% of total U.S. crude oil production and federal offshore natural gas production in the Gulf accounts for 5% of total U.S. dry production.

More than 45% of total U.S. petroleum refining capacity is located along the Gulf coast, as well as 51% of total U.S. natural gas processing plant capacity. Not to mention it is an import hub.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil 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.