Oil Traders Keeping an Eye on Iran

Are you ready for this weeks move?

CNBC's Sharon Epperson on oil price action in the day ahead, with an outlook on EU sanctions against Iran and tomorrow's meeting with Western countries about its nuclear program.



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Musings: Energy Stocks Have Mostly Trailed the Market This Year

The results of the November 2nd election and the recent Federal Reserve Bank’s announcement that it was embarking on another attempt to stimulate the economy by encouraging bank lending through a program to provide more liquidity to the banking system, known as the second quantitative easing, or QE2, have driven the stock market to levels that existed immediately before the collapse of Lehman Brothers. Accompanying the QE2 announcement, the worth of the United States dollar among world currencies fell in value helping to boost the price of commodities including crude oil. Natural gas prices in the U.S. have not benefited from the weakening dollar as the product is truly a local one.

When we look at the performance so far in 2010 for the overall stock market, as measured by the Standard & Poor’s 500 Stock Price Index, it has been solid. The S&P 500 index is up nearly 10% through the end of last week, and is at a level exceeding that achieved in late spring this year. But when we look at the performance of energy stocks, they have tended to lag the performance of the overall stock market despite the strong impetuous from commodity prices.

If we look at what has happened this year in energy markets, there have been two primary events that have shaped the business, the Gulf of Mexico oil spill disaster and the recovery in economy activity following the 2008-2009 recession. While energy demand has recovered from the drastic drop experienced last year due to the recession, the combination of rising supply and continued subpar economic growth and energy demand in the industrialized economies of the world has muted the magnitude of the oil price rise. Crude oil is denominated in U.S. dollars globally, and its price is impacted by the fluctuating value of the U.S. dollar. At various points in time during the year oil prices rose or fell sharply in response to movements in the value of the dollar, however, there was no sustained move in......Read the entire article.



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Report Says: Canada’s Oil Sands Set to Become Biggest Source of U.S. Oil Imports

The Role of Canadian Oil Sands in U.S. Oil Supply, a report from Cambridge, Mass.-based IHS CERA, says that in a fast-growth scenario, oil sands could represent 36% of oil imports by 2030, or 20% in a more moderate growth scenario, compared with 8% in 2009. Production of 1.35 million barrels per day (mbd) in 2009 could rise to between 3.1 mbd and 5.7 mbd by then. Although production of oil sands has run into environmental opposition, innovation in the technology of oil sand production has been constant and there will be continued progress in cutting greenhouse gas (GHG) emissions and reducing its environmental impact, the report says.

While the total “well to wheels” greenhouse gas emissions from oil sands are some 5 to 15% higher than the average crude oil produced in the U.S., a comparison to the average can be misleading because some domestic crude oil production can actually have higher GHG emissions, the IHS CERA report says. However, continued high growth in oil sands production will require further advances in managing water and land use and the reclamation of tailings the waste material byproduct, the report says.....Read the entire article.

New Video: Crude Oil Breaks $70 a Barrel, is it Time to be Short?

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Strong Market Sentiment Boost Commodities

Crude oil rallied after fewer than expected payroll contraction in the US. Investors anticipate improved economic outlook would boost energy demand. WTI crude oil price surged to a 7 week high of 72.07 before closing at 81.5, up +1.6% Friday. The benchmark contract also added +2.3% on weekly basis. Brent crude also rose +2.96% last week, narrowing the spread between WTI BRENT crude prices. We believe this was due to the unexpected stock build in Cushing Oklahoma, where the WTI crude is stored.

The US Energy Department reported on Wednesday that crude oil inventory increased +4.03 mmb, compared with market expectation of +1.9 mmb gain, to 341.6 mmb in the week ended February 26. Cushing stock, halting the downtrend, rose for the first time in 10 weeks. Although utilization rate increased +0.7%, it was more than offset by +2% rise in imports.

Gasoline inventory rose +0.77 mmb to 231.9 mmb despite decline in imports and flat production. Demand slid -2% to around 8.88M bpd. Distillate stockpile continued to draw but the magnitude was less than expected. Although demand rose +4.6% during the week, it remained +21% above 5 year average.

We regard this as a weak set of inventory data. However, the market ignored the huge increase in crude oil inventory but focused on strong ISM services data and other positive macroeconomic data. Moreover, investors might view increase in utilization rate and rise in implied petroleum consumption as signs of recovery in US oil market.

The weekly data is volatile in nature. Let's take a look at the 4 week average. Total product demand averaged at 19.3M bpd over the past 4 week, down -1.2% from the same period last year. Although the contraction has moderated, it's far from being described as encouraging. Similar situations are seen in fuel demands. 4 week average for motor gasoline and distillate were down -2.5% and -7.7% respectively from the same period last year.

In the coming week, the International Energy Agency, the US Energy Department and the OPEC will release their monthly oil reports. We expect to see modest upgrade in global oil demand given stronger macroeconomic outlook. Major growth driver remains in countries outside OECD. In previous reports, all 3 agencies viewed that OECD demand should remain subdue in 2010 and 2011. We will see if there're any upward revisions in these countries as OECD demand is crucial for sustaining oil price above 80.

From Oil N'Gold Saturday March 6th


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