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Market Intel Archives

Oil markets up last Friday; banks to get out of oil commodity business?

December 23, 2013

Recap:  Oil markets continued another sleigh ride up last Friday as NYMEX ULSD (HO) broke up through 3 resistance points to close up 4.75 cents to 3.0781 followed closely by NYMEX RBOB (Gasoline) settling up 4.3 cents to 2.7831. NYMEX Crude hit 99.32, the highest close since October 18th of this year, with ICE Brent closing higher as well, $1.48 to 111.77. The past weekend weather was tricky for those living in northern New England - central and northern Vermont and New Hampshire, along with most of Maine experienced ice build-ups, and extreme snow conditions.  To put this in perspective, I called LL Bean on Sunday morning and for the first time I can ever remember, there was a wait, because a bulk of their Freeport, Maine employees could not get to work! Temperatures should be warmer than normal across most of the Northeast through Christmas, but should be returning to the cold we have experienced in most of November and December.

Currently, oil markets are all slightly down with NYMEX ULSD (HO) down 73 points to 3.0708, NYMEX RBOB down 80  points to 2.7751, NYMEX Crude (WTI) down 25 cents to 99.07, and Brent ICE down 23 cents to 111.54.

Speculator "Spec" Watch:   The CFTC released its Commitments of Traders report on Friday afternoon for the week ended December 17th, showing a minor net flow of selling for money managers across US petroleum futures and options. Money managers sold a net of 5,980 NYMEX ULSD (HO) contracts indicating a net bearish flow, but still represents almost a 2 to 1 ratio of speculators "long" to those who are "short".  Recall from last week the following MarketWatch statement: "It is clear Wall Street is liking the cold weather and heating degree day demand along with shrinking heating oil inventories when it comes to NYMEX ULSD (HO). Net speculative length for futures and options rose by  the highest high position since summer. Wall Street owns 2 barrels of paper for every 1 barrel of NYMEX ULSD in the tank Currently, this trend is holding. However, speculators have increased their bullish appetite in natural gas, with money managers buying a net of 103,814 futures and options contracts.

Big News: Business Wire 12-20-13 "Morgan Stanley to Sell Global Oil Merchanting Business to Rosneft." Friday's announcement that Morgan Stanley,  would be selling its large oil commodity business to an oil company, Russian state-owned Rosneft, has begun the chatter that banks are getting out of the oil commodity business. Morgan Stanley joins Deutsche Bank, and soon JP Morgan may be joining them as well. This is a huge news development for our industry, because if bankers want out of volatile commodities because they can see bigger returns in other markets (the S&P 500 gained .48% on Friday's close to a record high), then perhaps, market pricing can return to some form of fundamental price stability. Until then, we have to continue to weather the current weather (no pun intended...), and the export situation that I will talk about tomorrow. 

View today's full market watch report by clicking here.

Refined Products Glossary

Oil markets continued to move higher

December 20, 2013

Recap:  Oil markets continued to move higher yesterday on leftover bullish reactions to Wednesday's EIA Inventory Report and the Federal Reserve's slight tapering decision. NYMEX Crude (WTI) pushed higher 97 cents to 98.77, ICE Brent up 66 cents to 110.29, NYMEX ULSD (HO) increased just over 2 cents to 3.0306, but NYMEX RBOB pushed even higher, 4.28 cents, to 2.7401. As we continue to approach the end of the year, most traders have already squared their books, packed their bags and are ready for a year end holiday, leaving a less liquid market that is subject to potentially more volatility. On the other hand, most fuel marketers, resellers, and dealers will be working hard providing fuel for holiday transportation needs and cold weather heating oil demand.  We surely appreciate their dedication, safety, and care not only during the holiday season, but during the toughest of weather conditions as well.

Currently, NYMEX ULSD (HO) is up 1.39 cents to 3.0445, NYMEX RBOB (Gasoline) is up 97 points to 2.7498, and ICE Brent is up 53 cents to 110.82.  NYMEX Crude is down 32 cents to 98.72.

Planning for weekend/next week. For the upcoming weekend, The Northeast Weather Services "NEWS" (administered by NEFI) is seeing a brief warm moderating trend, but with a Canadian cold front coming through northern New England this weekend, forecasted rain in NH and southern Maine could produce an ice event Saturday evening into Sunday. NEWS also released its weather trends on Wednesday, forecasting heating degree days through Friday December 27th. Expected Heating Degree Days (HDDs) both as a % of normal HDDs and the average HDDs for this period have moderated with more southern areas of the Northeast warmer than normal. Here are the following  Northeast locations:

New York:  NYC 79%, Binghamton 85%, Albany 86%, Newburgh 81%

New Jersey:  Newark 81%, Trenton 82%

Pennsylvania:  Philly  82%

Massachusetts:  Boston 86%, Worcester 88%, Chicopee 92%

Connecticut: Hartford 86%, Bridgeport 83%, New Haven 83%

NH: Manchester 89%, Portsmouth 117%, Lebanon 92%, Concord, 93%

Maine: Portland 94%, Augusta 97%, Bangor 101%

Vermont: Burlington 94%, Rutland 89%

For last minute shoppers: (New York- AP from 12/2/13): "Need a quick delivery? Jeff Bezos wants to send in the drones. That's the not-so-distant reality the CEO envisions, a future in which his company transports packages in 30 minutes or less using self-guided drones."  I'll stick with ground transportation! Have a great weekend and stay safe on those roads!

View today's full market watch report in a downloadable format by clicking here.

Refined Products Glossary

Market shoots up after release of EIA's weekly DOE Inventory Report

December 19, 2013

Recap:  Oil markets reaffirmed the existence of a "Santa rally," with the product side of distillates and gasoline leading the way. The market shot up 20 minutes after the release of the EIA's weekly DOE Inventory Report yesterday, and although inventory numbers came in at expectations, the market viewed the report bullishly. NYMEX ULSD (HO) closed at 3.0101, up 4.72 cents from the previous day's close and close the day's high. NYMEX RBOB (Gasoline) gained 5.01 cents to also close to its highs on the day at 2.6973. NYMEX Crude (WTI) traded in a $1 range, closing up 58 cents to 97.80 while ICE Brent closed up $1.19 to 109.63.

Currently, NYMEX ULSD is up 1.44 cents to 3.0245, NYMEX RBOB is up 1.23 cents to 2.7096, NYMEX Crude is flat to the screen at 97.83 and ICE Brent is up 57 cents to 110.20.

Murphy's Law:  Just yesterday I said,  "..... I am happy that oil markets have been down in the past few sessions, but am concerned with the tight distillate supply, so I am not sure this trend will hold."  Well, well, well. After the release of the EIA's weekly inventory report that fell within expectations of a seasonal end of year draw for commercial crude stocks, draw of distillate stocks on cold weather, and seasonal build in gasoline stocks, oil markets seemed to stay even. But 20 minutes later, after the market digested some of the details, NYMEX ULSD (HO) shot up, quickly breaking up through 3 levels of resistance. NYMEX RBOB seemed to mimic the same upward trend despite a seasonal build in gasoline stocks.  Further details revealed that distillate exports have grown a monster 31% over last year, shrinking U.S. distillate stocks,  particularly in PADD 1 (East Coast), by 8% since last year. PADD 1A (New England) is down 7% since last year as well. Further breakdown between ultra-low sulfur (under 15 ppms) and high sulfur fuels (over 500 ppms) show 33% less high sulfur product than last year, but an 11.5% increase in ultra-low product. The 11.5% increase does not offset the 33% reduction, thanks to....exports.  The NY harbor cash prices continued to tighten and indicate, that indeed, there is concern over distillate supply as we officially enter winter on December 21st. #2 Heating Oil (High sulfur) gained a penny and is now only a 1/4 of a penny basis difference to ULSHO, ultra-low sulfur heating oil. 

The Fed's decision: At about 2pm, the Federal Reserve released a statement regarding the decision of their 2 day FOMC meeting. The Fed voted to start reducing its bond purchasing (QE) in January from $85 Billion per month to $75 Billion (comprised of $35 Billion of mortgage backed securities and $40 Billion of longer term Treasury securities). The stock market reacted contrary to expectations, with the DOW Jones Industrial Average surging 292.71 points to close at 16,167.97. Despite the surprise that the Fed will start its tapering next month, stock market analysts are claiming this is a sign that the Fed believes the U.S. economy is healthy enough to start making small changes now. Equity markets reacted positively to this sign, and this robust reaction could have provided some additional "lift" to oil markets as well. But, from the file of "What we think should happen and doesn't", the dollar strengthened on the Fed's news, but energy commodities did not go down; instead, they moved back up. And for those of us who didn't want to believe in a Santa rally on the oil commodity side (I will take a stock market rally at the end of the year.....), we need to be reminded that oil markets are more dynamic than ever before and predicting market movements, are as useful as talking with the Easter Bunny. So, like this industry knows to do, buckle up, plan ahead for supply needs, watch weather reports (update tomorrow), and enjoy the ride!  

View today's refined products market watch report in a downloadable format by clicking here.

View Refined Products glossary.

Oil markets weak yesterday; will the market move down?

December 18, 2013

Recap: Oil markets were weak yesterday, with NYMEX ULSD (HO) leading the way down 2.73 cents to close at 2.9629. The contract continued to trade down after the close to as low as 2.9950.  NYMEX RBOB settled slightly up to close at 2.6472 while NYMEX Crude (WTI) was slightly down 26 cents to close at 97.22. Today the NYMEX Crude (WTI) contract expires and might create some additionally volatility but traded in a 90 cent range over the course of yesterday's trading. ICE Brent see-sawed back down on news that perhaps (!?) Libyan export terminals would be re-opening (Yes, this back and forth is getting a little silly). Brent closed down 97 cents to 108.44. Perhaps yesterday's downward pressure is linked to knowledge not yet learned about product inventories that will be released by the EIA today at 10:30am. Although CitiFutures and Bloomberg are both expecting crude stock draws and gasoline builds tomorrow, they differ on distillates. CitiFutures is expecting a -.5MMb to -1.5MMb draw, and Bloomberg is expecting a slight .24 MMb build, similar to the 5 year average of a .1 MMB build.

Currently, NYMEX ULSD (HO) is up 90 points to 2.9719, NYMEX RBOB is up 1.4 cents to 2.6612, NYMEX Crude (WTI) is up 13 cents to 97.35, and ICE Brent is slightly down 7 cents to 108.37.

Could this market move down? I receive a lot questions asking me what factors could help to keep this market down despite the fact that we are IN the heating season, it has been cold, AND speculative appetite on the NYMEX ULSD contract increased 33% last week. As most readers have noticed, I am happy that oil markets have been down in the past few sessions, but am concerned with the tight distillate supply, so I am not sure this trend will hold. So as a qualifier for this next segment, I will provide a scenario where prices could move down, but understand, the current lows are fabulous opportunities.

A stronger US Dollar.  When the U.S. dollar regains value, and the Fed intervention that has weakened the dollar subsides, money managers and investors who have been drawn to energy commodities as a currency "proxy" providing better rates of return than bonds will start to exit. Let's face it, commodities have always been a risky asset class, and money managers have relinquished "stability" for this potential higher rate of return.  The dollar will strengthen when both the economy is strong and deficit spending is reduced. Some recent indicators that are showing some positive signs for the U.S. economy include:

* The US Consumer Price Index for November is unchanged. (although the government excludes energy and food expenditures in this number). Last year, consumer prices were 1.2% higher.

* US factory output increased for the fourth straight month with November coming in at a + .6%. Motor vehicle production was up 3.4%. Overall production surpassed the pre-recession peak in December 2007.

* The National Association of Home Builders/Wells Fargo builder sentiment index increased to 58 for November. Any figure over 50 is considered good sales conditions for new home buying, and the November figure reached an 8 year high. Despite a higher national average 30 year mortgage rate of 4.42%, as compared to 3.31% last year, homebuilders are optimistic.

The above list could be counterweighted by 3 factors indicating the economy is still sluggish; however, there seems to be more positive news than negative. Congress is  working on a bi-partisan budget, so perhaps there is hope we can get our U.S. fiscal house in order.

View today's full market watch report in a downloadable format by clicking here.

Refined Products Glossary

Oil markets ended higher yesterday; LFP down to 62.9%

December 17, 2013

Recap:  Oil markets opened higher yesterday, stayed in positive territory, and ultimately finished up, although well off the highs of the day. ICE Brent moved up $1.09 and closed at 109.41. The move was prompted by Libyan officials stating that the anticipated opening of oil export terminals would not be happening. NYMEX Crude moved up 88 cents to settle at 97.48, followed by NYMEX ULSD and NYMEX RBOB closing up 1.45 and 1.44 cents to 2.9902 and 2.6437, respectively.

Currently, oil markets across the board have pulled back with NYMEX ULSD down 1.23 cents to 2.9779, NYMEX RBOB down 39 points to 2.6398, NYMEX Crude down 25 cents to 97.23 and ICE Brent down 74 cents to 108.67. Today, commodity and stock exchange participants  are waiting on any "tapering" direction the Federal Reserve will take at its meeting. According to a Reuters survey of the top Wall Street economists, half of them expect the Fed will strengthen its resolve in keeping interest rates low until the unemployment rate is closer to 6%, not 6.5% as previously anticipated.

Real unemployment rate? What has not been discussed in mainstream media outlets is the fact that the current unemployment rate does not accurately reflect the true unemployment rate as U.S. "discouraged workers" are not included in this "falling" unemployment rate. Currently, the unemployment rate is computed from a monthly survey of 60,000 households, and estimates those who are employed and those who are actively seeking work. One way to measure discouraged workers who are no longer seeking work and are not included in the employed nor unemployed ("actively" seeking work) categories, is to look at the labor force participation rate ("LFP"). The LFP is obtained by dividing the labor force by the total adult population. Since the end of the "Great Recession of 2008-2009", there was a sharp decline in the LFP rate. A year ago, the 2012 4th quarter LFP rate was 63.7% with an unemployment rate of 7.8%. However, almost a year later, the November 2013 unemployment rate is down to 7.0%, but the LFP is also down to 62.9%, a level not seen since Jimmy Carter was president in 1978.  As the economy improves, and there are indicators that it is improving (although slowly), discouraged workers will now actively seek employment and will shift into the "unemployed" classification, thus increasing the unemployment rate.  So this begs the question, is the unemployment rate (as currently defined)  a stable and accurate enough metric to for the Fed to use? With a new Fed Chair, Janet Yellen, on her way to confirmation, the Fed should maintain a conservative transition (maintaining current policies) into 2014 in an effort to keep market jitters to a minimum. We shall see.

Also weighing on oil market participants is the current, on-going cold temperatures in the Northeast, the largest home heating oil market in the United States. With distillate stocks even to where inventory was last year at this time, but with temperatures producing 20% more heating degree days across New York and New England, should we be bracing for a larger than normal draw this in tomorrow's DOE Inventory Report?  I believe we should be prepared, bracing for higher prices (remember, more speculators have jumped in) and tighter supplies. With regard to cash markets, there has been some tightening since the end of last week.  But, if we get lucky like last year and if NYMEX ULSD (HO) pricing stays under $3 through the end of the year, that would be fine year end gift!  

View today's full commentary and market watch update in a downloadable and printable format by clicking here.

Refined Products Glossary

Oil markets traded down Friday, current up across the board

December 16, 2013

Currently, oil markets are all up across the board with NYMEX ULSD (HO) rebounding back 5.6 cents from last week to 3.0317 along with NYMEX RBOB up 4.54 cents to 2.6747. NYMEX Crude (WTI) is up 82 cents to 97.42, but ICE Brent is up higher, $1.75, to 110.58.

Recap:  Oil markets traded down on Friday, with NYMEX Crude (WTI) leading the pack, down 90 cents to $96.60. Weighing this contract down was increasing talk that the Federal Reserve will start to taper its QE bond purchasing programs along with expectations that Libyan oil supplies will start flow. NYMEX ULSD (HO) and NYMEX RBOB (Gasoline) were dragged down by WTI and traded within a 3 cent range, both settling down about half a penny to 2.9757 and 2.6293, respectively. ICE Brent climbed higher on news that Iranian nuclear talks have stalled, but closed 6 cents under to 108.32. Additionally, ethanol spot prices dropped 50 cents on Friday.

Tapering??  Last week, the impact of the Federal Reserve scaling back or "tapering" its series of Quantitative Easing "QE" bond buying programs to the tune of $85 Billion per month is being blamed for the stock and commodity markets retreating. Per the AP this morning, "Expectations are growing that the Federal Open Market Committee might decide at its meeting, held on Tuesday and Wednesday, to start cutting back on the stimulus following some recent strong U.S. economic data reports and signs of an imminent budget agreement in Congress." Markets have gotten used to government intervention and now with signs of a strengthening economy and a stronger dollar, crude oil does not look as attractive. However, if today's market response is any indication, transitioning away from Fed intervention will most certainly be volatile for both stock and commodity markets.

Speculator "Spec" Watch: The CFTC released its Commitment of Traders Report last Friday afternoon, and it is clear Wall Street is liking the cold weather and heating degree day demand along with shrinking heating oil inventories when it comes to NYMEX ULSD (HO). Net speculative length for futures and options rose by 33% to 25,551 contracts, the highest high position since summer. Wall Street owns 2 barrels of paper for every 1 barrel of NYMEX ULSD in the tank. As mentioned last week, when Wall Street is long, they "win" when markets go up. Is this another reason why markets are up?  Speculators don't seem to be favoring a well supplied NYMEX RBOB winter market as much with a paper to physical ratio of 4:5.  NYMEX Crude net speculative length rose as shorts decreased by 26%, to a two month high of 252,199 futures and options contracts while ICE Brent futures and options increased 1.3% to 131,416 contracts.

View the commentary and charts in a downloadable and printable format by clicking here.

Refined Products Glossary

Oil markets soft after release of inventory report

December 12, 2013

Recap: Oil markets were soft yesterday after the release of the EIA's weekly DOE Inventory Report.  NYMEX Crude (WTI) settled down $1.07 to 97.44 followed by NYMEX RBOB (Gasoline) settling down as well, 2.18 cents to 2.6611.  NYMEX ULSD (HO) looked like it could have settled down, but settled up just 39 points to 3.0212. ICE Brent settled up 38 cents to 109.51.

Currently, oil markets are slightly up. NYMEX Crude is up 36 cents to 97.80, NYMEX RBOB up 90 points to 2.6701, NYMEX ULSD (HO) up 33 points to 3.0245, and ICE Brent Crude up 5 cents to 109.75.

DOE Inventory Recap: Although total commercial crude stocks drew a sizeable 10.6 MMbs (with Wall Street expectations of a 2.75 MMb draw), 7.2 MMbs of that draw resulted from PADD 3 (Gulf Coast). U.S. domestic crude oil production hit 8.08 MMb/day, the highest point since 1988, but at the same time imports fell 12% to its lowest point, 6.9MMb/day since 2000, again attributing to the sizeable draw.

I received a few calls asking why  NYMEX Crude didn't act more reactive with such a large draw. The reason is because traders all know to expect the annual PADD 3 (Gulf Coast) drawdown in December to avoid paying taxes on barrels sitting in storage tanks. Stephen Schork of The Schork Report really sums it up best in today's newsletter: " light of LIFO accounting considerations, there is an extraordinary incentive to lower PADD 3 crude oil stocks through the end of this year so as to minimize an end-of-year ad valorem tax assessment on inventory. This is an annual rite of passage for traders and marketers." Beginning in January, crude stocks will magically start to build again.

The larger than expected build in gasoline stocks of 6.72 MMbs and distillate stocks of 4.54 MMbs most likely helped to take some steam out of NYMEX Crude (WTI) futures. Luckily, refinery runs have increased to a healthy 92.6% across the country, and PADD 1 (East Coast) refiners increased to 85.3% from 84.3% last week. However, despite the sizeable distillate build we are even to where total stocks were last year at this time, when it was much warmer weather. Total distillate stocks are almost 18% below the 5 year average. Specifically PADD 1 (East Coast) distillates built 1.55 MMbs to 37.7 MMbs from the previous week, but are still below last year's level of 38.2 MMbs. Even more specifically, PADD 1A (New England) is down .643 MMbs from the previous week and is 9% lower than last year -- again, 2012 December temperatures were warmer than normal. With colder temperatures looming, we will be watching next week's DOE Inventory Report very closely.

View today's refined products market watch report by clicking here.

Crude up, otherwise oil markets weak yesterday

December 11, 2013

Recap:  Oil markets were weak yesterday with the exception of NYMEX Crude (WTI) which continued its move up $1.17 to settle at 98.51.  NYMEX ULSD (HO) traded within a 5 cent range, but spent most of its time on either side of its previous close, ultimately closing up 30 points to 3.0173. NYMEX RBOB traded in a similar range and closed 80 points to 2.6829. ICE Brent Crude lost a penny to settle at 109.38. Dow Jones reported that Brent Crude could be under pricing pressure as there is an agreement to reopen Libyan export terminals on December 15th that have been virtually closed for the past four months due to a strike by terminal workers.

Brent-WTI Spread: As mentioned in previous reports, when the Brent-WTI spread increases, exporting gasoline and distillates become attractive to U.S. refiners. But on the flipside, as this spread narrows, this appetite is curbed. We have witnessed the rise of this spread since the middle of September; however, since Thanksgiving, the Brent-WTI has almost been cut in half as we now stand in the $10.50 range.  We know exports have been a major factor in the low supplies of distillates, particularly on the East Coast, so perhaps the tides are changing. This change would be welcomed in hopes that we could build larger stocks of heating oil as we are already in the heating season and temperatures have been seasonably  cold and much colder than last year at this time.

Currently, it is DOE Inventory day, and the EIA will release their figures at 10:30am this morning. A Bloomberg/Reuters average survey as published by The Schork Report today is expecting a 2.75 MMb draw in commercial crude stocks, while distillates will build 1MMbs, and gasoline will build 1.75 MMbs. As far as NYMEX pricing, WTI Crude is down 31 cents to 98.20, ULSD (HO) is down 20 points to 3.0153 and RBOB (Gasoline) is down 2 cents to 2.6629. ICE Brent is down 54 cents to 108.84.

Click here to view the full refined products market watch report including a Brent-WTI chart.

Refined products glossary

Oil markets up on news that China's industrial output rose

December 10, 2013

Recap:  Oil markets were down across the board yesterday, with ICE Brent leading the way down $2.22 to 109.39, followed by NYMEX RBOB (Gasoline) down 5.2 cents to 2.6749, NYMEX ULSD (HO) down 4.22 cents to 3.0143, and finally NYMEX Crude (WTI) holding steady but dropping down 31 cents to 97.34. The Brent-WTI spread continues to narrow, and closed at just over $12, down almost $5 in 2 weeks.  Perhaps the drop could be attributed to some speculative interest that was refocused to natural gas yesterday.

Currently:  Oil markets are all up this morning on AP news this morning that China's industrial output rose 10% from the previous November (slightly lower than October) but retail sales grew 13.7%, higher than expected. NYMEX Crude (WTI) has pushed over $98 to $98.30, up 96 cents from yesterday's close. NYMEX ULSD (HO) is up 2.13 cents to 3.0356, NYMEX RBOB is up 1.57 cents to 2.690, and ICE Brent is up 21 cents to 109.60.

Speculative ("Spec") Watch:  Every Friday, the Commodity Futures Trading Commission (CFTC) releases its weekly Commitment of Traders Report, reporting on changes in commodity positions through Tuesday of the same week. For example, the CFTC released its Commitment of Traders Report last Friday, December 6th, reporting on energy positions as of last Tuesday, December 3rd. Wall Street increased its net length in NYMEX Crude (WTI) by 8% to a 6 week high of 246,661 contracts. What does that mean and who cares? When a trader is long, it means that they have bought futures (or options) contracts and will benefit when NYMEX prices go up. Specifically, to a speculator, it means that he or she is "betting" that the market will go up because they will only get a pay out, if the market goes up. A speculator can bet on the other direction and can be short or sell futures, and will get a payout if the market goes down. Speculators can have both short and long positions simultaneously, but their net position will show their bias to either the market moving up (net long) or market moving down (net short). Their positions matter because collectively, markets will move on the momentum of how much "length" or "shortness" exists. Therefore, when we see increases in net length, or significantly more paper contracts being traded than the underlying physical commodity, it can give the rest of us non-speculators, an insight into the speculative appetite and its potential for moving market pricing.

Finishing off the CFTC report, Wall Street increased its net length by 8% in NYMEX RBOB (Gasoline) to 45,524 contracts. NYMEX ULSD got the most interest last week (hmmm...and prices were moving up) with net speculative length increasing 86% to the highest point since last summer to 19,178 contracts, representing almost twice as much paper as there is physical product in storage.  Speculative net length increased on Brent Crude futures and options (as reported by ICE, the exchange where Brent is traded) 21% to 129,761. And, I will mention of significance is that the CFTC reported that Wall Street doubled its net length over the past 2 weeks in NYMEX Natural Gas (NG) to 188,494 contracts. When speculators "favor" a certain energy contract over another, the favored contract potentially could get more interest, increasing length, and potentially increasing higher prices. Perhaps the speculative interest in the NYMEX Natural Gas contract was behind yesterday's natural gas rally of 11.8 cents to close up at 4.232.

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Oil markets strong last week on news of pipeline opening

December 09, 2013

Recap:  Oil markets were strong last week with NYMEX Crude (WTI) leading the way on news that TransCanada's southern portion of their Keystone XL pipeline will open mid-January 2015, moving crude from Cushing, OK to Port Arthur, TX. This announcement has produced a reaction that WTI crude will get pulled higher to the international crude pricing benchmark, Brent crude. The Brent-WTI spread continued  to narrow and closed below $14 on Friday. NYMEX Crude (WTI) finished up on Friday 27 cents to 97.65 while ICE Brent Crude finished up as well 63 cents to 111.61. NYMEX ULSD (HO) closed up 69 points to 3.0565 along with NYMEX Gasoline (RBOB), up 1.42 cents to 2.7269. Cold weather along with ice/snow events across the country (now landing in the Northeast) supported higher prices as well.

Currently,  the oil complex is down. NYMEX ULSD (HO) is down 70 points to 3.0495, NYMEX Gasoline (RBOB) down 64 points to 2.7205, NYMEX Crude (WTI) down slightly to 97.63 and ICE Brent Crude down 71 cents to 110.90.

Commonly Asked Question: “With all of this crude oil, why haven’t retail oil prices moved down more?” The simple answer to a new complex dynamic is: exports.

Background:  Despite record crude production, U.S. crude flow has been constricted due to a limited pipeline infrastructure and has not efficiently flowed to refineries where it can be refined into petroleum products like gasoline and diesel fuel.  One major crude storage center, and choke point, is Cushing, Oklahoma located in PADD 3 (Gulf Coast), just above Oklahoma City about 550 miles from the Gulf Coast refinery epicenter in Port Arthur, Texas.  Although TransCanada recently reported that the southern leg of their Keystone XL pipeline will finally connect these two locations for improved efficiencies by mid January 2014, President Obama has not approved the longer, northern portion of the Keystone XL.  Luckily, rail transportation has provided an alternative to pipelines for crude oil movements.  As more crude oil has moved out of the Bakken region, for example, inventory stocks have increased, and both the spot price (cash market) and the futures contract price (NYMEX Crude WTI-West Texas Intermediate) for crude have decreased. In relation to Brent crude, the “international” crude benchmark (as traded on the InterContinental Exchange (ICE), WTI crude has been the cheaper feedstock for U.S. refiners in 2013. Moreover, U.S. refiners have enjoyed a competitive advantage to European refiners that are using a more expensive, Brent crude feedstock. Due to federal law, crude oil extracted from U.S. land cannot be exported; however, once refined, a “new” product like gasoline or diesel fuel can be exported.

So, with cheaper crude feedstock and European and South American markets thirsting for cheaper U.S. petroleum products, we are now witnessing the creation of a robust export business for U.S. refiners. Who could have predicted one short year ago, this new dynamic of surplus crude oil stocks along with dwindling product stocks? And the prediction for 2014 oil markets? Markets will be difficult to predict precisely because of this evolving dynamic! Keep those questions coming!

Click to view today's full refined products market watch report in a downloadable format.

Refined products glossary