Oil finds bullish support in EIA, weather reports

Out of Thin Air

Isn’t amazing how all of a sudden bullish stories seem to materialize when markets are at key support and oversold? Oil (NYMEX:CLX13), which couldn’t buy a bullish story, all of a sudden got three that turned the market’s fortunes.  Not only did we see a storm develop in the Gulf of Mexico that caused some evacuations of non-essential personal from off shore oil rigs, you had an announcement from TransCanada about the fate of the Keystone pipeline in two ways as progress and lack of progress will impact both the supply and demand side. Just enough to overcome what was on the face of it a bearish oil inventory report but a drawdown in Cushing, Okla. and strong farmer demand for diesel helped turn around this falling market.

Oil started its turnaround just ahead of the Energy Information Administration weekly supply report. While oil supply shocked on headline with a 5.47 million barrel build, a drawdown of 59,000 barrels at Cushing offered a bit of background support.  Surging gasoline stocks rising 3.5 million barrels reflected weak seasonal demand. Strong demand for distillate up 1.6% from last year led to a 1.68 million barrel draw and refining runs at 89% reflecting seasonal maintenance.

Yet traders may have been more focused on the weather. A tropical storm in the Sothern Gulf Of Mexico is forcing evacuations. Reuters reported that “BP Plc said on Wednesday it was evacuating some workers from its oil and natural gas platforms in the Gulf of Mexico as a low-pressure system threatened to strengthen into a tropical storm. BP said on its website that workers not essential to oil and gas production were being evacuated as some forecasts suggested the weather system could cross the central Gulf, where BP operates four platforms. Those include Thunder Horse, the largest platform in the world, which can produce up to 250,000 barrels per day of oil and 200 million cubic feet of natural gas. The company also said oil and natural gas production at all BP-operated platforms remains online at this time.”

TransCanada also lent support by saying they would open the southern leg of the Keystone pipeline but have basically given up any hope that the northern part of the pipeline will be approved this year. What that means is that Keystone will suck down more supply from Cushing, Okla. but will not be replenishing it with Canadian Crude. So it will mean lower U.S. supply and higher prices. In the meantime Canada will look for other avenues to sell their oil sands crude.

In the meantime oil also got support from a bad jobs report . The ADP jobs report showed a lousy 169,000 jobs, basically assuring the market that the Fed will not be able to taper unless the U.S. jobs report refutes that anemic number. Oh wait, with the government shutdown there will be no report. No report means no taper — so sell dollars, buy gold, and buy oil and buy bonds.  Now if the government gets its act together then, oh never mind.

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Phil Flynn

Phil Flynn




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