Crude Oil May Fall as Seaway May Prove Insufficient to Ease Glut

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Crude oil may decline next week on concern that the reversal of the Seaway Pipeline will not be enough to alleviate a record supply glut in the central U.S., a Bloomberg survey showed.

Nineteen of 34 analysts, or 56 percent, forecast oil will drop through May 25. Nine respondents, or 26 percent, predicted prices will rise and six estimated they will be little changed. Last week, 48 percent of surveyed analysts expected a decrease.

Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) completed the pipeline reversal yesterday and plan to start shipping oil this weekend from Cushing, Oklahoma, the delivery point for West Texas Intermediate oil futures traded in New York, to the Gulf Coast. U.S. oil inventories rose to a 22 year high and Cushing stockpiles peaked in the week ended May 11 as domestic output increased, according to the Energy Department.....Read the entire Bloomberg article.


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Don’t Count Your Easter Eggs Before They Hatch and do not Count......

From guest blogger Phil Flynn......

Don’t count your Easter eggs before they are hatched and do not count your barrels of oil until they come into port. A supply side surge in oil and a seemingly faltering Eurozone sent oil prices crashing back down to earth. The Energy Information Administration sent oil on a big ride by reporting that U.S. commercial crude oil inventories increased by 9.0 million barrels from the previous week. At 362.4 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year.

The build came after a surge of delayed imports. The EIA reported that U.S. crude oil imports averaged nearly 9.8 million barrels per day last week, up by 505 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged about 9.0 million barrels per day, 59 thousand barrels per day above the same four week period last year. We saw a supply surge into the Gulf Coast as all of the crude that was lost in the fog showed up all at once. We also saw supply increase into Cushing, Oklahoma.

In an excellent article the EIA says that, “Crude oil inventories at the Cushing, Oklahoma storage hub, the delivery point for the NYMEX light sweet crude oil futures contract, have risen by 12.0 million barrels (43%) between January 13, 2012 and March 30, 2012. This was the largest increase in inventories over an 11 week period since 2009. The inventory builds can be partly attributed to the emptying of the Seaway Pipeline, which ran from the Houston area to Cushing, in advance of its reversal. While Cushing inventories are now approaching the record levels of 2011, the amount of available storage capacity at Cushing is much greater now than it was a year ago, relieving some of the pressure on demand for incremental storage capacity.

Historically, the Seaway Pipeline delivered crude oil from the U.S. Gulf Coast to Cushing, where it then moved to the refineries connected by pipeline to the storage hub. In November 2011, Enbridge Inc. acquired a 50% share in the pipeline from ConocoPhillips; at this time, Enbridge and joint owner Enterprise Product Partners announced they would reverse the direction of the pipeline to flow from Cushing to the Gulf Coast. Currently, the pipeline is expected to deliver 150,000 barrels per day (bbl/d) from Cushing to the Gulf Coast beginning in June 2012. The companies plan to expand Seaway's capacity to 400,000 bbl/d in 2013 and to 850,000 bbl/d in 2014."

"In early March, approximately 2.2 million barrels from the Seaway pipeline was emptied into Cushing storage in order to prepare for the pipeline's reversal. This accounts for about 20% of the build in inventories during this period. However, even without the emptying of Seaway, inventory builds over the past months have been particularly steep compared to the five year average. As of January 13, Cushing inventories stood at 28.3 million barrels, slightly below their seasonal five year average. After the 12.0 million barrel increase, inventories were almost 11 million barrels above their average level, the largest such variation to average since June 2011. This is largely due to flows into Cushing as a result of increasing production in the mid-continent region."

If you thought the euro crisis was solved with the Greek bailout then you were counting your Easter Eggs before they were hatched. Of course oil will focus on demand and the fear it may slow. The euro zone looks like it is headed back into a crisis. Weaker than expected data and concerns about Spain. A weak Spanish bond auction is raising fears that Spain is on a path to economic crisis bringing the EU and the world down with it. Here we go again.


Phil can be reached at 800-935-6487 or email him at pflynn@pfgbest.com

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Phil Flynn: The Autumn Un-Equinox

Gold sizzles, oil fizzles in the aftermath of the Fed promise to reinflate the economy. Oil and the leafs are beginning to fall as demand for oil and the economic outlook continue to weigh heavily. The disparity between gold and oil recently seem to reflect the despair that we are feeling from the FOMC committee or perhaps the Obama economic team. Now this morning the market fears that demand for oil may fall in Europe as well after a euro zone purchasing managers' survey fell to 53.8 in September from 56.2 in August the slowest pace in 7 months.

While their manufacturing sector is still expanding the market was looking for a number closer to 55.7%. This slower pace comes a day after a very bearish Energy Information Agency report that showed a surprise increase in crude supply and a depressing feeling on demand. If you were worried about the impact that the Enbridge pipeline shutdown and inclement weather might have had on supply I guess you shouldn’t have because supplies increased anyway. Crude defied expectations rising by.....Read the entire article.

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Crude Oil Falls a Fourth Day Concern U.S. Economy Will Be Slow to Recover

Crude oil fell for a fourth day on speculation that the U.S. economic recovery is slowing, reducing fuel demand in the world’s biggest oil consuming country. Oil slipped as much as 1.2 percent after the Thomson Reuters/University of Michigan preliminary September index of consumer sentiment fell to 66.6 from 68.9 a month earlier. Enbridge Energy Partners LP obtained government approval to resume sending Canadian oil to refineries in the Midwest on Line 6A. The system will begin operating today, the company said.

“The market really started to tank once the consumer confidence numbers came out,” said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston. “The economy is the driver of this market right now.” Crude oil for October delivery declined 67 cents, or 0.9 percent, to $73.90 a barrel at 10:15 a.m. on the New York Mercantile Exchange. Brent crude oil for November settlement fell 36 cents, or 0.5 percent, to $78.12 a barrel on the London based ICE Futures Europe exchange.

Oil futures topped $78 a barrel this week following the closure on Sept. 9 of Enbridge’s 466-mile Line 6A. The pipe spilled about 6,100 barrels of oil from a section in Romeoville, Illinois, about 30 miles southwest of Chicago. The 34-inch line runs from Superior, Wisconsin, to Griffith, Indiana, and can carry 670,000 barrels a day of crude, equal to more than one- third of Midwest imports. Goldman Sachs Group Inc. said in a report today that the pipeline’s closure will keep U.S. crude oil imports at reduced levels in coming weeks.

Lower Inventories
“As the tide turns, we will see lower inventories and shifting sentiment send WTI crude oil prices into a $85-$95 per barrel trading range in coming months,” Goldman said in the report.
“The oil price will remain stuck in a $70 to $80 range,” said Tobias Merath, head of commodity research at Credit Suisse Group AG in Zurich. “At first it looked like the Enbridge repairs would take a long time. Now it seems it will go fairly fast. Markets are very well-supplied and U.S. demand is lackluster.”

Bloomberg reporter Mark Shenk can be reached at mshenk1@bloomberg.net

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Crude Oil Falls on New York Manufacturing Numbers, Enbridge Line May Start This Week

Crude oil fell for a third day in New York after a U.S. government report showed fuel demand declined last week and as Enbridge Energy Partners LP prepared to start a pipeline after repairs, easing supply concerns. Crude dropped after the Energy Department said gasoline demand tumbled 2.6 percent to 9 million barrels a day, the lowest rate since the week ended March 12. Enbridge said it will start preparations to flow oil through a pipeline linking Canada and refineries in the U.S. Midwest early tomorrow. Manufacturing in the New York area expanded slower than forecast, signaling economic growth may falter.

“We’re not seeing as much consumption as we thought,” said Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney. “There is an oversupply of oil.” Crude for October delivery fell as much as $1.02, or 1.3 percent, to $75 a barrel in electronic trading on the New York Mercantile Exchange. It was at $75.24 at 2:45 p.m. Singapore time. Yesterday, the contract slipped 78 cents, or 1 percent, to $76.02. Futures have declined 5.2 percent this year.

Prices fell after the Federal Reserve Bank of New York’s general economic index slumped to 4.1 this month, the lowest since July 2009, from 7.1 in August. Economists expected the reading to climb to 8, according to a Bloomberg News survey. Houston based Enbridge won’t restart its Line 6A until the Pipeline and Hazardous Materials Safety Administration is satisfied with the company’s repair and safety plans, administration spokesman Damon Hill said in an e mail.....Read the entire article.

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Commodity Corner: Pipeline Outage Continues, But Oil Ends Lower

October oil futures edged lower Tuesday despite fears of a prolonged shutdown of a key Enbridge pipeline that carries crude oil from Canada to the U.S.

Crude prices settled at $76.80 a barrel, a 39 cent decrease from the previous day's trading session. The continued shutdown of Line 6A of Enbridge's Lakehead System near Chicago is providing support for oil prices. Line 6A, which can carry up to 670,000 barrels a day from Canada to the upper Midwest, will not be allowed to restart until U.S. government regulators deem it safe. Already causing a sharp increase in gas prices across the region, investors fear the supply disruption could begin to drain U.S. oil inventories.

Additionally, sluggish economic growth in Germany applied downward pressure to crude futures. A survey revealed lower than expected German investor sentiment, and industrial production in the euro area was flat in July, according to EU's statistics office. Analysts suggest that despite China's booming economy, mixed economic conditions in the U.S. and Europe have kept price increases in check.

The intraday range for October crude was $76.21 to $77.99 a barrel.

Meanwhile, natural gas for October delivery rose 2.8 cents Tuesday to settle at $3.97 per thousand cubic feet. The third price increase in as many trading days supports speculation that the days of lower natural gas futures may have passed for the season. However, some analysts are being cautious and are not declaring a seasonal rally yet. Gas prices were threatened earlier Tuesday on forecasts of storm clusters forming in the Gulf of Mexico, but no immediate storm threats have been seen, steering clear of production outages. Natural gas
fluctuated between $3.84 and $4.02 Tuesday.

RBOB gasoline settled lower at $1.97 a gallon, peaking at $2.00 and bottoming out at $1.96.

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Commodity Corner: Oil Gets Boost from China, Pipeline Closure

From the Rigzone staff....

The October crude oil futures price increased by nearly 1% Monday on news about China's industrial production growth rate.

Oil settled at $77.19 a barrel, a 74-cent increased from Friday, after the National Bureau of Statistics of China reported the country's August 2010 industrial production rate was 13.9% higher than the comparable figure for August 2009. Broken down by various sectors, the government agency reported year on year increases of 12.9% in raw chemical material and chemical product manufacturing; 20.1% in transport equipment manufacturing; and 14.9% in the production and supply of electricity, gas, and water.

Also supporting the oil futures price Monday was the ongoing closure of a key segment of Enbridge's Lakehead System near Chicago following a leak reported last Thursday. Enbridge announced Monday that it had recovered all but approximately 50 of the 6,100 barrels of crude that had leaked from the pipeline. The company had no current estimate of when it might restart the line, but it was working with shippers to divert crude oil volumes to other available pipelines and storage facilities.

Oil traded within a range from $76.36 to $78.04 Monday.

A suddenly active Atlantic hurricane season, and the possibility that energy infrastructure in the Gulf of Mexico will be in the path of a tropical system, helped to nudge the natural gas price toward $4.00 Monday. Gas for October delivery settled at $3.94 per thousand cubic feet, a six-cent gain from Friday, with the existence of three systems circulating in the tropics. In the west-central Caribbean, a broad, poorly organized low-pressure system was moving west-northwestward Monday afternoon. The National Hurricane Center was giving the system a medium chance (40%) of developing into a tropical cyclone by Wednesday afternoon.

Out in the mid-Atlantic, Hurricane Igor was packing maximum sustained winds of 150 miles per hour late Monday morning. Forecasters were expecting the storm to follow a northwestward track and become centered approximately 500 miles northeast of the Lesser Antilles by Thursday morning. Another system, Tropical Storm Julia, was churning near the Cape Verde Islands Monday afternoon and moving in a west-northwestward direction at 13 miles per hour. Thanks in part to shearing conditions produced by Igor, forecast models anticipate that Julia will become a low end hurricane and then weaken into a tropical storm.

The October natural gas futures price fluctuated from $3.80 to $3.97. Gasoline futures increased by a penny to settle at $1.98 a gallon Monday. The intraday range for gasoline was $1.97 to $2.01.

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