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Market Intel Archives

Oil markets down despite supportive price factors

June 23, 2014

Recap: Oil markets were mixed on Friday as July NYMEX (WTI) Crude finished higher upon its expiration while ICE Brent Crude moved lower on profit taking ahead of the weekend.  Tim Evans of CitiFutures commented in his Friday morning e-letter that "US products continue to track more closely with Brent than WTI as the New York Harbor delivery point ties in with East Coast crude oil acquisition costs as well as the product import/export balance." And as the Iraqi conflict continues to support petroleum prices, Commerzbank's noted to clients on Friday, "Brent's current price increase is very much reminiscent of its surge in the late summer of 2013, when it was the threat of a military strike against Syria that gave rise to fears of the crisis escalating and of supply outages." (Dow Jones 6/23/14) Friday settlements: With July NYMEX (WTI) Crude expiring up 83 cents to settle at $107.26 and ICE Brent Crude losing 25 cents to settle at $114.81, the Brent-WTI spread narrowed to $7.55. The incoming August NYMEX Crude contract finished up 78 cents and settled at $106.83. NYMEX ULSD (HO) finished down 12 points to $3.0521 and NYMEX RBOB (Gasoline) settled up 22 points to $3.1277.  

Currently, oil markets are mixed with NYMEX ULSD (HO) even at $3.0512, NYMEX RBOB up 43 points to $3.1320, NYMEX  Crude (August) is down 8 cents to $106.75, ICE Brent Crude is down 7 cents to $114.73. As traders have been concerned about Iraqi oil exports, it appears that for now, the Iraqi army has control over the northern Baiji oil refinery (320,000 barrels per day), and also the southern oil fields and export facility in Basra (averaging 2.6 Million barrels per day this month). Whether or not it will be used, "the U.S. already has half a dozen warships in the Middle East, with enough airpower that can be unleashed if needed against the insurgents." (DTN 6-20-14). It seems that there are more headlines and stories to support oil prices than to bring them down at the moment. Oil markets will continue to watch tensions that have not eased between Ukraine and Russia as President Putin has put another 65,000 Russian troops on combat alert. Chinese manufacturing data that came out last week that showed the HSBC preliminary manufacturing purchasing managers index rose to a 7 month high at 50.8, compared to 49.4 in May. This is the first time in 2014 that the index has moved above 50, indicating expansion. Lastly, lest we forget we are now officially in summer along with American summer driving demand.   

Speculator "Spec" Watch:  According to the CFTC's Commitments of Traders Report released on Friday for reporting through Tuesday, June 17th, the Money Manager (Speculative) category revealed that net speculative length increased across the board for NYMEX (WTI) Crude, NYMEX ULSD (HO) and NYMEX RBOB (Gasoline). For NYMEX (WTI) Crude, net speculative length increased 14,656 combined futures and options contracts, or 4.3% from the previous week of 341,680 to 356,336 contracts.  Net speculative length for NYMEX ULSD (HO) increased a whopping 75% from 15,487 futures and options contracts to 27,131 contracts. NYMEX RBOB increased 4,586 contracts, or up 8%,  from 57,324 to 61,910. These renewed net long speculative positions across the petroleum complex provide yet more price support to the list above.

Click here to view today's Refined Products MarketWatch.

Oil markets down but July WTI crude moves up on today's expiry

June 20, 2014

Recap: Oil markets continued to move higher across the board on Thursday with the Iraqi crisis keeping solid support under the entire complex. July NYMEX (WTI) Crude moved up 46 cents to $106.43, along with the incoming August NYMEX Crude contract that moved up 46 cents to $106.05. Since the June 11th settlement just before the breaking of the Iraq news, the July WTI crude contract has  advanced $2.03 or 1.9%. The July WTI contract expires today. Yesterday, ICE Brent Crude moved up 80 cents and settled at $115.06, reaching a 9 month high. Since June 11th, Brent has increased more than WTI up $5.54 or 5%. The Brent-WTI spread has also moved up with Brent increasing more than WTI during this period. Yesterday the Brent-WTI spread settled at $8.63. We have now seen the spread accelerate up $3.08 or 55% since it settled on June 11th at $5.55! Recall, that as this spread widens, it provides additional incentive for American refiners to export products.  NYMEX ULSD (HO) moved up 1.23 cents to $3.0524. Since the 2014 low settlement of $2.8481 on June 4th, ULSD (HO) has moved up 20.43 cents. NYMEX RBOB (Gasoline) closed higher 2.73 cents to $3.1255 and is up 14.48 cents since Memorial Day. 

Currently, oil markets have pulled back except for the expiring July NYMEX (WTI) Crude contract and the incoming August WTI contract. July NYMEX Crude is up 22 cents to $106.65, August NYMEX Crude is up 16 cents to $106.21. ICE Brent Crude is down 32 cents, NYMEX ULSD (HO) is down 78 points to $3.0446, NYMEX RBOB (Gasoline) is down 62 points to $3.1193. Perhaps the market is taking a breather from current Iraqi headlines, but that crises is likely far from over. 

Iraq Crisis update: Iraqi President Maliki has expressed his frustration with the slow response from the U.S. However, as mentioned earlier in MarketWatch, with Iran (Shiite) providing military support to neighboring Iraq to help prevent the spread of ISIS militants to Baghdad and further south to oil export facilities, the U.S. is in what many military and political analysts believe is a no-win situation. For example, key oil producing Middle Eastern allies like the United Arab Emirates (UAE) and Saudi Arabia, both Sunni, illustrate the regional sectarian divide, now with northern Iraq/eastern Syria home to the Islamic fundamentalist militants, ISIS, who are committed to building a physical Islamic state. To the northeast, the Kurdish forces have established control over that region and are looking to separate from Iraq. Additionally, the UAE, "a key trading partner for Iraq, temporarily withdrew its ambassador from Iraq for consultations ...The Gulf federation's foreign ministry  cited deep concern at the Iraqi government's exclusionary and sectarian policies."  (AP 6-19-14) Yesterday, President Obama said “he was leaving open the possibility of targeted and precise military action in the future" as 300 "military advisors" were en route to the region (AP 6-19-14). As some U.S. leaders recommend airstrikes to stop ISIS, others are reluctant to redeploy American troops to the region.  That said, according to AP reports yesterday, "U.S. oil firm Exxon Corp. and British oil company BP PLC have already begun withdrawing foreign staff from Iraq due to security reasons."

Click here to view today's Refined Products MarketWatch.

WTI Crude moves lower as rest of complex moves higher

June 19, 2014

Recap: Oil markets were all in positive trading territory yesterday, until the EIA's weekly DOE Inventory Report (for the week ending June 13, 2014) revealed that commercial crude stocks declined less than anticipated at .6 MMbs and helped move the NYMEX (WTI) Crude contract lower. NYMEX Crude settled down 39 cents, while ICE Brent moved higher, crossing the $114 level on more Iraqi/ISIS violence now including attacks on a northern Iraqi refinery producing the bulk of refined products for Iraqi domestic consumption. ICE Brent moved up 81 cents to $114.26, and once again with Brent moving higher and WTI moving lower (3rd trading day in a row), the Brent-WTI spread widened to $8.29. Although DOE data revealed a slight build in distillate stocks of .4 MMbs and was within expectations, NYMEX ULSD (HO) still moved higher as it seems to be following Brent crude higher. NYMEX ULSD settled higher by 2.21 cents to $3.0401, moving up through two daily resistance points. NYMEX RBOB moved higher as well and traded in a narrow 2.5 cent range before settling up 71 points to $3.0982 as DOE data revealed a .8 MMb build on a Bloomberg expectation of a .55 MMb decline.  

Currently, oil markets are up except the July NYMEX Crude contract (expiring tomorrow) supported with headlines like this AP morning headline, "Militants fly their black flags over Iraq refinery." (6-19-14) NYMEX ULSD is up 41 points to $3.0442, NYMEX RBOB is up 1.43 cents to $3.1125, ICE Brent is up 37 cents to $114.63, but July NYMEX Crude is down 11 cents to $105.88.

DOE Highlights:

*Total refinery % operable utilization dropped .8 percentage points to 87.1% on unplanned outages. This is lower than last year at 89.3% and 91.9% in 2012. The PADD 1 (East Coast) rate was at a strong 93.7%, up .4 percentage points to 93.3%.

*East Coast (PADD 1) distillate stocks are down 7.6% from last year and 22% below the 5 year average. New England (PADD 1A) distillate stocks are 20.8% lower than last year, and 47% below the 5 year average. Central (including NY-PADD 1B) distillate stocks are 4.4% lower than last year and 25% below the 5 year average.

*East Coast (PADD 1) gasoline stocks are .2% lower than last year, and 5.7% above the 5 year average.

*Cushing, OK crude stocks increased (.247 MMbs) for the first time after 9 consecutive weeks of declines and currently are at 21.4 MMbs, still 56% lower than last year, but above the 20 MMb psychological mark.

*North Dakota oil production surpassed the 1 MMb per day level in April.

Headlines other than Iraq:

*The Federal Reserve announced yesterday afternoon that it will continue to taper by cutting another $10 Billion from its monthly bond purchases. Additionally, "the Fed barely increased its estimate of inflation despite signs that consumer price increases are picking up. Its benign inflation outlook suggests that the Fed doesn't feel rising pressure to raise short-term interest rates." (AP 6-18-14) Following the announcement, U.S. equity markets increased for the fourth day in a row.

*The U.S. Senate Committee on Energy and Natural Resources passed a Keystone XL pipeline bill yesterday 12 to 10 "to approve the construction of the Keystone XL pipeline without a Presidential permit." Chairwoman Senator Mary Landrieu (D-La) will push for a vote on the Senate floor and commented, "Two events in the last 24 hours underscore clearly why today's vote to approve the Keystone Pipeline was important. The Canadian government has conditionally approved the 730 mile Enbridge's Northern Gateway Pipeline to send oil sands to the West Coast of Canada instead of the Gulf Coast. And, yesterday, al-Qaeda affiliated militants attacked the largest oil refinery in Iraq....." (AP 6-18-14)

*A bipartisan plan to raise the federal gasoline and diesel taxes to help bolster the Federal Highway Trust Fund in order to improve an aging infrastructure. The plan would raise the gas and diesel tax by 12 cents each: the gas tax would move fro the current18.4 cents per gallon, and diesel tax from the current 24.4 cents. (AP 6-18-14)

Click here to view today's Refined Products MarketWatch.

Oil markets up on Iraq and ahead of DOE Inventory Report

June 18, 2014

Recap: Oil products settled higher while the crudes were mixed upon Tuesday's settlement. NYMEX ULSD(HO) gained 2.01 cents to break $3, trading in a 4.83 cent range before settling at 3.0180. NYMEX RBOB (Gasoline) traded in a 3.91 cent range and closed up 1.93 cents to $3.0911. NYMEX (WTI) Crude lost 54 cents to close at $106.36 while  the international benchmark, ICE Brent Crude, gained 51 cents as it continues to have more exposure to Iraqi headlines. As the Brent-WTI spread widened from Monday's close of $6.04 to $7.09 yesterday, it seemed with the approaching end of the 2nd quarter June 30th, financial money managers may be rebalancing their positions ahead of the July WTI contract's expiration this Friday with volume solid at 204,792 contracts on open interest of 135,072 contracts.   

Currently, oil markets are currently up across the board.  NYMEX ULSD is up 81 points to $3.0261, NYMEX RBOB is up 70 points to $3.0987, NYMEX Crude is up 29 cents to $106.65 and ICE Brent is up 20 cents to $113.65. Today the EIA will release its weekly DOE Inventory Report and if Bloomberg analysts' expectations are correct, commercial crude stocks could decline, thus providing yet a boost to NYMEX (WTI) Crude pricing. (see estimates below) Also, The Associated Press is reporting this morning that "Islamic militants laid siege to Iraq's largest oil refinery Wednesday." (AP 6-18-14) The Beiji refinery is located 155 miles north of Baghdad and is responsible most of Iraq's domestic petroleum consumption and represents about a quarter of Iraq's total refining capacity.   

DOE Inventory Estimates.  CitiFutures is expecting the following increase (build) or decrease (draw) ranges for the following: 2 MMb draw to 3 MMb draw range for crude stocks [Bloomberg expecting only a .75 MMb decline, last year a .3 MMb build, but 5-year average is 1.1 MMb draw]. For gasoline, CitiFuture's is expecting a .5 MMb to 1.5 MMb build range for gasoline [Bloomberg expects a .55 MMb decline, last year a .2 MMb build, and 5-year average is .4 MMb build]. CitiFutures a .5 MMb to a 1.5  MMb build range for distillates [Bloomberg expects a .35 MMb build, last year a .5 MMb draw, and 5-year average is .3 MMb build] and a 2.0 percentage point increase in refinery % operable utilization to 89.9%. [Bloomberg expects a .7 percentage point increase to 88.6%, and the 5-year average is 88.2%] The API (American Petroleum Institute) reported yesterday afternoon their results: crude stocks declined 5.7 MMbs, distillates increased .5MMb,  gasoline was virtually unchanged, and refinery % operable utilization dropped .5 percentage points to 87.4%.

"Why aren't oil markets "way" higher on all the geo-political news?" This is a question MarketWatch has received several times, so here are some thoughts. Energy analyst Stephen Schork of The Schork Report noted in his Tuesday newsletter that he was "perplexed by the market's insouciance" (nonchalance) and has not yet begun to price in even greater instability in Iraq. As he noted, "The problem with event driven rallies is that you need a steady stream of headlines to keep the market adequately stoked. Without the fuel, bulls have little to hype and the momentum stalls." However, Schork sees a "very real threat to global oil supplies ... at peak demand season no less," and sees the market now "flirting with a potential proxy war between Saudi Arabia (Sunni) and Iran (Shiite) … not unlike Catholics and Protestants circa 1618. That war only lasted 30 years. The fear from here is that this proxy Arab/Persian war descends into an all-out hot war." Another factor is that the market may believe that there is enough Saudi Arabian spare capacity to make up for any lost Iraqi barrels. But as CitiResearch analysts noted in their Energy Weekly Tuesday, "The Kingdom claims it can pump 12.5m b/d. Subtracting the reported 9.7m b/d of Saudi production in May indicates 2.8m b/d spare, giving a slim margin of cover in the worst-case scenario of the loss of southern Iraqi exports which have been running about 2.5m b/d. But given that the market has never seen Saudi Arabia hold production over 10m b/d, a combination of scepticism and caution seems warranted." Whatever the reason for oil markets not pricing in additional premium at this time, it seems the oil complex is consolidating around these higher price ranges.  Market participants need to be prepared for new catalysts that may be the tipping point for markets moving higher including Iraqi air strikes on ISIS targets (assisted with the U.S.) and further rounds of Russian sanctions.

Click here to view today's Refined Products MarketWatch.

Oil markets remain supported by Iraq headlines

June 17, 2014

Recap: Oil markets stayed supported Monday with the products and ICE Brent Crude posting gains while NYMEX Crude oil settled down a penny to $106.90. ICE Brent Crude (August) finished up 48 cents to $112.94, putting the Brent-WTI spread at $6.04. NYMEX ULSD (HO) traded in a 2.37 cent range and settled under $3 to $2.9979, up 1.03 cents on the day. NYMEX RBOB (Gasoline) settled up 1.41 cents to $3.0718. The RBOB July to August backwardation is at 3.11 cents. Currently, oil prices are lower across most contracts on news that the U.S. has deployed up to 275 American soldiers to "... protect the U.S. Embassy and other American interests as President Barack Obama weighs options ..." (AP 6-17-14) This is in addition to the U.S. Navy moving in ships and an aircraft carrier to the Persian Gulf over the weekend. NYMEX ULSD (HO) is down 57 points to 2.9921, NYMEX Crude is down 47 cents to $106.43, ICE Brent Crude is down 27 cents to $112.67, but NYMEX RBOB is up 15 points to $3.0733. 

The new ABC's of Geo-politics and its impact on oil markets:

A) Iraq issue a market replay of Syria issue last year? A fantastic summary from  Michael Wittner's "Oil Special", Societe Generale Cross Asset Research on 6-16-14. "What is happening right now is exactly what the oil markets feared last year, during the August/September 2013 Syrian crisis, when it appeared that there would be a US-led military action against Syria, after Assad used chemical weapons. At that point, the concern in the oil markets was that the fighting would spill over into a neighboring country with much larger oil production and exports than Syria; that briefly drove Brent crude prices up from $108-110 to $117. The main worry and most likely scenario was always Iraq. And now it's happening. Iraq is now in a de-facto state of civil war -- once again ... The reason for the relatively restrained price response so far is that production and exports of Iraqi crude in the region of last week's fighting - northern Iraqi Kirkuk crude - has been totally shut down since early March, because rebel groups bombed the northern pipeline to Turkey and forced its closure. In short, the 250 kb/d of Kirkuk oil exports that would have otherwise been most immediately at risk last week was lost months ago, and the oil markets had already adjusted. " See the ICE Brent and NYMEX ULSD (HO) charts below for perspective on market reaction creating highs last August as compared to where these markets are now.

Geo-politics: B) Odd Bed-fellows: US and Iran both supporting the Shiite-controlled Iraqi government? As the U.S. engages in the Iraqi conflict, so too has Iraq's Shiite ally, Iran. Iran has reportedly deployed 3 battalions of elite Qud forces (part of the Iran Revolutionary Guard) to help fight against ISIS. (Societe General) As Michael Wittner points out in his "Oil Special" report, "In the complex politics of the Middle East, it is worth pointing out something quite interesting. The US and Iran could end up as temporary allies of convenience in Iraq, if they both end up giving military assistance to Maliki's Shiite government...From a pure 'geopolitics of oil' perspective, if the US and Europe see a deterioration in the Iraqi situation that could persist for some time, with commensurately higher risks to oil flows, they would have a bigger incentive to get Iran's missing 1 Mb/d back on the market. Of course, it is not nearly that simple, but it is food for thought." Needless to say, this odd set of circumstances translates into current oil markets supported by these geopolitical headlines, at least in the near term until OPEC swing producer Saudi Arabia (Sunni related, fyi) could ramp up production to fill part of this gap. However, according to Barclay's analyst Lydia Rainforth, "This comes at a time when there is already limited spared capacity in the market and given lower refinery maintenance planned for the second half of the year we expect seasonally higher demand. For this reason, even with no disruption to supply, we believe violence in Iraq is likely to keep the oil price well supported near term although physical outages would be required to drive it higher still." (Dow Jones Newswires 6-17-14)

Geo-politics: C) Russia and China (and other countries) ready to fill the void? The New York Times reported over the weekend that the U.S. State Department confirmed that Russia crossed the Ukrainian border with tanks and heavy equipment in order to support Russian separatists in Ukraine. Additionally, the Associated Press reported Monday that Russia cut Ukraine's gas supplies as the payment deadline came and went. Russian Gazprom is now requiring that any gas requested by Ukraine will be delivered only on a pre-payment basis. "The decision does not immediately affect the gas flow to Europe, but could disrupt the long-term energy supply to the region if the issue is not resolved, analysts said." (Source: AP 6-16-14)  And across into the South China Sea, Philippine Foreign Secretary Albert del Rosario has called for a moratorium on Chinese construction in the oil-rich Paracel Islands " and would use the international community to step up and to say that we need to manage the tensions in the South China Sea before it gets out of hand." Chinese Foreign Ministry spokeswoman, Hua Chunying commented that "The Philippines has been taking provocative actions to escalate tensions on the one hand, and making irresponsible remarks about what China has legitimately done within her sovereign rights on the other. That is totally unjustifiable." (AP 6-16-14) Viet Nam also claims the Paracel island chain (along with Taiwan, Brunei, and Malaysia) and they too take issue with China, particularly when China moved its oil rig about 20 miles off the islands' coast. The takeaway of the new ABC's of geo-politics is that despite the oil revolution taking place in North America, old political threats have transformed into more complicated economic and military ones that require leadership  to prevent more voids being filled by a far worse threat. An additional morning note, is reporting North Korea "appears to have acquired a sea-based copy of a Russian cruise missile."
Click here to view today's Refined Products MarketWatch.

Oil markets supported by Iraqi headlines

June 16, 2014

Recap: Oil markets consolidated on Friday, locking in profits after Thursday's Iraq-driven rally, with crudes posting modest gains and the products settling lower. While the Iraq headline is still providing support to the market, the market's surprise factor "by the speed and extent of rebel incursions into the south" (AP 6-13-14), is now embedded in trader's expectations at a higher range. July ICE Brent Crude futures contract expired Friday, up 39 cents to  $113.41 while the incoming August Brent contract settled up 4 cents $112.46.  July NYMEX (WTI) Crude settled up 38 cents to $106.91, and expires this Thursday, June 20th. The August NYMEX WTI contract settled up 39 cents to $106.17. On the products side, NYMEX ULSD (HO) lost 17 points settling at $2.9876 coming down after an overnight high of $3.0239. NYMEX RBOB (Gasoline) lost 2.60 cents settling at $3.0577, coming down after an overnight high of $3.1123. Currently, oil markets are mixed with August ICE Brent Crude almost even at $112.48, NYMEX Crude up 14 cents to $107.05, NYMEX RBOB down 2 points to $3.0575, and NYMEX ULSD up 18 points to $2.9904.

Speculator "Spec" Watch:  According to the CFTC's Commitments of Traders Report released on Friday for reporting through Tuesday, June 10th, the Money Manager (Speculative) category revealed that net speculative length decreased  for NYMEX (WTI) Crude, NYMEX ULSD (HO) and NYMEX RBOB (Gasoline). Apparently, they did not foresee the Iraqi crises either when oil markets rallied on Thursday.  For NYMEX (WTI) Crude, net speculative length decreased 1,325 combined futures and options contracts, or a .4% decrease from the previous week of 343,005 to 341,680 contracts.  Net speculative length for NYMEX ULSD (HO) decreased  from 19,229 futures and options contracts to 15,487 contracts,  or a 19.5% decline representing a 2 month low. NYMEX RBOB declined 3,015 contracts, or 5%,  from 60,339 to 57,324. Expect to see a reversal in the next report.

The New Geo-political paradigm?  As U.S. foreign policy shifts more and more to a non-police force posture for the rest of the world,  the resulting security void seems to be creating opportunities for these voids to be filled. An economic recession, American public opinion, renewed prospects of American energy "independence", and a current President with a new view of the world could be a few viable reasons why the United States is more absent to global allies for military assistance. But now it is clear that other forces wanting to fill the voids are ready to move: Russia, China, Syria, and Islamic terrorist groups. The markets are finally taking notice. From CitiResearch analysts on Friday, "The fall of Mosul and the expanded territorial reach of the Islamic State of Iraq and the Levant (ISIL) [Another name for ISIS] may have limited immediate impacts on oil supply, but like the Russian annexation of Crimea and the potential break-up of Libya, it points to a systemic and seismic shift geopolitically. Among the many long-term geopolitical factors at work, two represent significant, persistent and growing challenges to global political stability. On one hand, the visible breakthrough of the physical barriers and political borders between Syria and Iraq and the symbolic joining of them under a wider Islamic banner in our view pose physical challenges to the maintenance of borders laid down nearly a century ago. On the other hand, divisions in Iraq along broad religious, tribal, ethnic and regional lines, like those in Libya, illustrate the growing dangers of fragmentation, particularly in petroleum–based economies, where multiple claimants sharing in the rewards of petroleum resource development are vying with one another to stake their claims, and where there is a further challenge to the integrity and stability of governing institutions." (Source: CitiResearch: Redrawing the Map: Iraqi turmoil may have limited near-term effects, but points to longer-term increase in fragmentation and geopolitical risks: 6-13-14). While Iraqi violence headlines continue to support oil markets, news of Russia and China exerting their power is brewing as well.

Click here to view today's Refined Products MarketWatch.

Oil markets rallied on intensifying Iraqi takeover

June 13, 2014

The Recap is about Iraq: Oil markets rallied across the board yesterday as deepening concern grew that the al Qaeda-related Iraqi Sunni rebel group, ISIS (Islamic State of Islam in Iraq and Syria), will takeover Baghdad after taking the northern city of Mosul on Tuesday, and Tikrit on Wednesday.  As ISIS forces moved toward Baghdad, Iraqi Kurdish forces took control of Kirkuk a northern oil producing city. "The security forces of Iraq's autonomous Kurdish north, known as peshmerga, or 'those who confront death', took over bases in Kirkuk vacated by the [Iraqi] army....the whole of Kirkuk has fallen into the hands of peshmerga..." (Reuters 6-12-14) The Kurds believe that Kirkuk is their historical capital along with its large oil reserves. In a matter of days, there are now two different groups controlling different regions in Iraq, the Kurds to the very northeast, and for ISIS from northern Mosul to central Baghdad. (See map below) The Shi'ite led Iraqi government forces have requested airpower from the U.S., but as markets have come to see, it may be too little too late as memories of the Iraqi 2006-2007 sectarian civil war and ethnic cleansing appear all too real. Not only are markets concerned for the stability of Iraq's oil export infrastructure, but the real possibility that a civil war will splinter Iraq and the 3 Million barrels of crude exported per day.

ICE Brent, NYMEX Crude, NYMEX ULSD, and NYMEX RBOB broke through 3 daily technical resistance points, in addition to breaking up through both weekly and monthly resistance points. This technical action would indicate that we have moved up to higher trading ranges. July Brent crude led the pack, up $3.07 to $113.02 (the contract is set to expire today), with the incoming August Brent crude contract settling up $3.05 to $112.42. NYMEX (WTI) Crude moved up $2.13 to settle at $106.53, NYMEX ULSD (HO) moved up 8.50 cents to $2.9893, and NYMEX RBOB (Gasoline) moved up 8.29 cents to $3.0837.

Currently, oil markets are up across the board this morning, but down from their overnight highs. NYMEX ULSD has breached the $3 mark and is now up 1.33 cents to $3.0026. NYMEX RBOB is up 10 points to 3.0847, NYMEX Crude is up 35 cents to $106.88, and ICE Brent is up 44 cents to $113.46.

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Oil markets up yesterday and today on Iraq violence

June 12, 2014

Recap:  Oil markets reversed back up across the board from the previous day's decline. The EIA released its weekly DOE Inventory Report Wednesday morning which revealed a larger than expected draw for commercial crude oil stocks of 2.6 Million barrels (MMbs), on expectations of a 2 MMbs decline, putting total crude oil stocks at 386.9 MMbs. DOE data for Cushing, OK crude stocks matched the American Petroleum Institute's (API) data of a smaller .2 MMb draw, keeping Cushing inventories above the psychological 20 MMb level at 21.2 MMbs, but 57% lower than last year. These crude results were in the market's expected range as NYMEX (WTI) Crude settled 5 cents higher on the day at $104.40. DOE inventory data showed that the products increased within expected ranges as well: distillate stocks up .9 MMbs (expectations of 1 MMbs) and gasoline stocks up 1.7 MMbs (expectations of 1 MMbs). However, the products were still able to settle higher, both moving up through 2 resistance levels: NYMEX ULSD (HO) settled up 2.02 cents to $2.9043, and NYMEX RBOB (Gasoline) up 2.63 cents to $3.0008. So why did the move up across the entire oil complex? A bullish feature of the report was the reduction of refinery operable capacity rate from a solid 90.8% for the week ended May 31st declined 2.9% to 87.9% in this current report. Were markets pricing in expectations of product declines next week? Perhaps, but a more likely source of the overall market pop could be the geo-political news that the al Qaeda-related Iraqi Sunni rebel group, ISIS (Islamic State of Islam in Iraq and Syria), overran the city of Tikrit yesterday, after seizing the northern city of Mosul on Tuesday. Not only is Iraq's Baiji refinery at risk, but ultimately the 3 Million barrels exported daily. Meanwhile, OPEC announced that it will keep its output target unchanged at 30 MMbpd, falling within market expectations and recognizing the short term limitations of increased production from member states yesterday. This information was sufficient to push the international crude benchmark, ICE Brent Crude above the $110 level yesterday, but settled just lower at $109.95, up 43 cents on the day. Total volume was higher than open interest, respectively, 127,592 contracts of volume on 107,712 contracts, confirming the interest in the contract. 

Currently, oil markets are all up, and all are currently at their highs from the overnight. Not only is ICE Brent Crude above the $110 level, it has already tested highs from back in March in the $112 range. Brent Crude is up $2.06 to $112.01, NYMEX (WTI) Crude is up $1.81 to $106.21, NYMEX RBOB (Gasoline) is up 5.09 cents to 3.0517, and NYMEX ULSD (HO) is up 4.76 cents to $2.951. It appears that the market is digesting a series of bullish news including how easily al-Qaeda related "ISIS" Sunni rebels have rolled over the Iraqi military and the ever potential that Iraqi oil exports are truly threatened. With the rally on Monday, it is likely that more speculative trades entered the markets, and these headlines are ideal for moving the complex higher. 

DOE Inventory Highlights: Gulf Coast (PADD 3) crude imports dropped a very large 1.05 MMbpd, bringing it to its third lowest levels since the early 1990's of 3.17MMb/d. This significance is underscored in The Schork Report this morning, "Herein underscores the tectonic shift that has occurred over the last couple years in the U.S. petroleum complex. That is to say, we are now into the peak demand season for crude oil and imports are at their lowest level in over twenty years."  On the distillate side, East Coast (PADD 1) stocks are 2.4% below last year, but 9.5% lower than the 5 year average. New England (PADD 1A) stocks are 24% lower than last year, but 45% below the 5 year average. Central (PADD 1B- includes New York) are 4.5% lower than last year, but 27.9% below the 5 year average. On the gasoline side, although total stocks are higher than last week, they are 3.6% lower than last year. East Coast (PADD 1) gasoline stocks are down 4.6% over last year, but are 3.2% higher than the 5 year average.
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Oil markets rally on Monday

June 10, 2014

Recap: Oil markets rallied across the board Monday with NYMEX (WTI) Crude leading the charge up $1.75 to settle at $104.41. ICE Brent Crude followed WTI up $1.38 to settle (preliminary) at $109.99, but had crossed the psychological $110 level of $110.16 as a high on the day. NYMEX RBOB (Gasoline) climbed up through 3 resistance levels to settle close to the high on the day of $2.9869 at $2.9848, up 4.58 cents. NYMEX ULSD (HO) also broke through 3 resistance levels to a high on the day of $2.9029, before edging back to $2.8912, up an even 2 cents on the day. Without any striking headlines on the day, it seems oil markets were being positioned for a pop up after weekly declines last week with these on-going elements: (1) Potentially another Cushing crude stock draw this week as refinery runs hit a solid 90.8% rate when DOE reports its weekly inventory data this Wednesday, (2) Commercial crude stocks drawing as well, (3) European Central Bank (ECB) reducing rates to stimulate Europe's economies, (4) Evidence that the G-7 will not be able to agree on Iran's nuclear program by the July 20th deadline, thereby reducing Iranian crude exports anticipated to enter the market, and (5) Saudi Arabia maintaining its 30 Million barrel per day quota, although the global market may need more supply. Perhaps there were just too many collective bullish topics, that prompted the entire petroleum complex higher.

Additionally, the NYMEX RBOB July-August backwardation moved back above 3 cents to 3.15 cents, indicating markets eyeing potentially tighter gasoline inventories with higher summer driving demand.  However, even though the 4-week average U.S. gasoline demand of 9.195 MMbpd is 5.4% higher than last year, Tim Evans of CitiFutures points out that weak underlying conditions such as the recession, gasoline price increase, increased fuel efficiencies, and older demographics of drivers who drive less, have flat lined U.S. vehicle miles driven since a peak in 2007. (See chart from below) "For example, U.S. vehicle miles driven for the 12 months ended March 2014 are about 2.5% below their 2007 peak. March miles driven were .2% higher than a year ago." (CitiFutures 6-9-14) We will have to continue to watch gasoline markets closely as well. 

DOE Inventory Estimates.  CitiFutures is expecting the following increase (build) or decrease (draw) ranges for the following: 2 MMb draw to 3 MMb draw range for crude stocks, a .5 MMb to 1.5 MMb build range for gasoline, a .5 MMb to a 1.5  MMb build range for distillates, and a .5 percentage point increase in refinery % operable utilization to 91.3%. Historically, the 5-year average pegs crude stocks with a 1.7MMb draw, a .7 MMb build for distillates, a 1.3 MMb build for gasoline stocks, and an 88.1% operable utilization rate.
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WTI Crude the only gainer on Friday, today entire oil complex higer

June 09, 2014

Recap: Oil markets settled in reverse fashion on Friday from the previous close, with NYMEX (WTI) Crude being the only gainer on the day, up 18 cents to settle at $102.66.  ICE Brent Crude moved down 18 cents to settle at $108.61, putting the Brent-WTI spread at $5.92. Much of Friday's crude trading action appeared to be related to traders rebalancing their books between the Brent and WTI contracts using the Brent-WTI spread. In a week's time, the spread has lost 75 cents.  One month ago upon the May 6, 2014 settlement, the spread was $8.10, representing a 27% decline to Friday's close. NYMEX ULSD (HO) moved down 85 points to settle at $2.8712, and was down on the week 1.34 cents. NYMEX RBOB (Gasoline) closed down 1.73 cents to $2.9390, and was 5.75 cents lower on the week. The July to August backwardation was 2.92 cents, expanding from a week earlier at 2.46 cents. 

Currently, oil markets are up across the board on due, in part, to Chinese data reported over the weekend that May exports increased 7% (in dollar terms) significantly better than the .9% increase in April, and that Chinese crude oil imports were 8.9% higher than a year ago. Additionally, the Dow Jones Newswires are reporting that G-7 negotiations with Iran's nuclear program, "...have hit a brick wall and the July deadline for negotiations to be finalized will not be met..." This could result in support for Brent crude prices as Iranian crude exports may not be "flooding on to the market in the second half of the year." (Dow Jones 6-9-14) ICE Brent Crude is up 78 cents to $109.39, NYMEX Crude is up 76 cents to $103.42, NYMEX ULSD is up 77 points to $2.8789, and NYMEX RBOB is up 1.86 cents to $2.9576. 

Speculator "Spec" Watch:  According to the CFTC's Commitments of Traders Report released on Friday for reporting through Tuesday, June 3rd, the Money Manager (Speculative) category revealed that net speculative length decreased  for NYMEX (WTI) Crude and NYMEX ULSD (HO), while it increased slightly for NYMEX RBOB (Gasoline). For NYMEX (WTI) Crude, net speculative length decreased 5,064 combined futures and options contracts, or a 1.5% decrease from the previous week of 348,069 to 343,005. Total open interest increased 29,812 contracts, and is 12% lower than a year ago. Tim Evans of CitiFutures reported on Friday that "we see potential for a larger intermediate-term cycle of long liquidation." Long liquidation would entice WTI crude prices to move down, and a feature that could impact the whole petroleum complex. Net speculative length for NYMEX ULSD (HO) decreased 30% from 27,657 futures and options contracts to 19,229 contracts. Total open interest declined 10,147 contracts to 268,406, down 13% from a year ago. From Wednesday May 28th to Tuesday June 3rd, the period of time that the CFTC reports data ending June 3rd (but released it on Friday, June 6th), NYMEX ULSD was down every day for the week for a total of 7.77 cents. Although this CFTC data is lagging, and thus, easier to look backwards and see the relationship that NYMEX ULSD (HO) prices decreased when net speculative length decreased 30%, it can provide an awareness as to the market's appetite for a particular contract into the future. As we saw last week, ULSD lost an additional 1.77 cents on Wednesday, popped back up 3.16 cents on Thursday, and retreated 85 points upon last Friday's close. This latest round of drop and pop may be offering an idea that the market is trying to consolidate in a new range. NYMEX RBOB's net speculative length increased  a mere .3% from 60,130 futures and opens contracts to 60,339 contracts. Total open interest declined 21,635 contracts to 313,710 but is still 16% higher than a year ago. With a July-August backwardation approaching 3 cents, traders could be more willing to hang onto long positions viewing the summer driving season as a reason for increased demand.

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