Bears Run For Cover!

From our trading partner Phil Flynn....

Ultra bears are starting to change their tune on oil as weak Chinese manufacturing data and strong manufacturing data in Germany both point to better demand. China's demand may rise as the Chinese government will be forced to act swiftly to reach their growth target and should soon add stimulus increasing oil demand. Factory activity in China fell to 49.2, according to HSBC, a number that should force the Chinese government's hand.

In Germany, we are already seeing the QE impact on oil demand. The Purchasing Managers Index for the manufacturing and services industries across the region rose to a much stronger than expected 54.1 ked by a 0.4 percent expansion in Germany. Germany is the beneficiary of being the strongest economy in the Eurozone at a time when the ECB central bank has launched unprecedented stimulus. On top of that you see the U.K. inflation rate come in at the lowest rate in history. The inflation rate fell below zero for the first time in history and all of a sudden this QE madness is likely to continue.

Get our latest FREE eBook "Understanding Options"....Just Click Here!

Now one might think that might be bearish as the dollar might continue its historic upward move as the rate differential outlook could cause continued safe haven buying. But now it seems that the Fed may be influenced into not rating rates quickly as the dollar strength is causing more problems. We saw in the FOMC that Fed Chair Janet Yellen warned that the Fed will not be impatient in raising rates. The Fed's Stanley Fischer suggested that the Fed will be data, and perhaps dollar dependent on raising rates and warned that there would not be a "smooth upward path" for interest rates hikes.

Oil bears are also counting on another big inventory increase. Yet data from Genscape, the private forecaster, is suggesting that the build might be much less than the 4 million barrel builds that is being bandied about. Genscape reports that the increase of less than 2 million barrels are around 1.6 million. That should reduce fears of storage over flowing. In fact the Energy Information Administration reported that although inventory levels at Cushing are at their record high, storage utilization (inventories as a percent of working storage capacity) are not at record levels. Capacity utilization at Cushing is now 77%, a large increase from a recent low of 27% in October 2014. However, utilization reached 91% in March 2011, soon after EIA began surveying storage capacity twice a year, starting in September 2010."

See Phil on the Fox Business Network and follow him on Twitter @energyphilflynn!

See what our Gold and Oil traders are trading everyday, and it's free....Just Click Here!

North American Spot Crude Oil Benchmarks Likely Diverging Due to Bottlenecks

Gold and Silver on the Verge of Something Spectacular

West Texas Intermediate at Cushing, Oklahoma (WTI Cushing), a light, sweet crude grade, is North America's most closely observed crude oil price benchmark and the underlying commodity of the NYMEX crude futures contract. Until 2008, all North American crude grades broadly tracked fluctuations in WTI Cushing prices and were clustered within about $8 per barrel of the WTI Cushing price. Pricing differences between crude grades were largely explained by the different quality characteristics of the crude oil in each location and transportation costs to Cushing, the delivery point of the NYMEX contract.

Since 2008, however, the price differences between WTI Cushing and other North American crude oil benchmarks have increased sharply (see chart below). In addition to WTI, other crude grades have emerged as alternative benchmarks. In particular, the Argus Sour Crude Price Index (ASCI), a weighted average of prices for several offshore Gulf of Mexico sour crude grades, has become the benchmark or reference used for assessing the price of several imported grades sold on a long-term contract basis, including Saudi Arabian and Kuwaiti crude grades.



Transportation constraints in the wake of rising production from inland fields in Canada, North Dakota, and Texas are one of the main drivers of the growing price discrepancy between crude grades since 2008. Limited pipeline capacity has made it difficult to bring crude oil out of the center of the continent, lowering all the affected benchmarks compared to prices outside the area. But within the constrained area, prices have also diverged from each other, reflecting local transmission bottlenecks within the larger constrained area. For example, crude oil benchmarks for the Bakken, Western Canada, and West Texas Sour (Midland, Texas) have traded at a discount to WTI Cushing. Rising production in the Bakken and West Texas have exacerbated these price differences. Outside the constrained areas, benchmarks like Louisiana Light Sweet, Alaska North Slope, and Mars Blend in the Gulf of Mexico reflect premiums to WTI Cushing, sometimes significant.

The phrase "transportation constraints" refers to a broad range of logistic issues, with inadequate pipeline capacity being the most common issue. However, EIA is not aware of any crude oil production capacity being shut in because of a lack of capacity to move the oil. In the short term, production surges and/or pipeline shutdowns force oil producers to compete with each other for more expensive transport options: rail and then truck. In the longer term, additional transportation capacity (rail and pipeline) is likely to be built, which should lower the cost of transporting the oil to markets.

Some North American crude oil benchmark locations are identified in the map below.

Source: U.S. Energy Information Administration. 

Gold Still at Risk of a Large Downward Move Before the Rally

Working Crude Oil Storage Capacity at Cushing, Oklahoma Rises

As of March 31, 2012 working crude oil storage capacity at the Cushing, Oklahoma storage and trading hub was 61.9 million barrels, an increase of 6.9 million barrels (13%) from September 30, 2011 and 13.9 million barrels (29%) from a year earlier, as reported in EIA's recently released report on Working and Net Available Shell Storage Capacity.

Utilization of working storage capacity on March 31, 2012 was 64%, an increase from the 53% observed in September 2011, but lower than the 86% observed on March 31, 2011. The report also noted that operating shell storage capacity increased 8.1 million barrels (12%) from September 30, 2011 to reach 74.6 million barrels.

Both storage capacity and the level of inventories held at Cushing are closely watched market indicators, as Cushing is the market hub for West Texas Intermediate (WTI) crude oil that is the basis for crude oil futures contracts traded on the New York Mercantile Exchange. High inventory levels at Cushing have been a symptom of transportation constraints that have resulted in WTI trading at a discount relative to comparable grades of crude oil since early 2011.

Growing volumes of U.S. crude oil production, along with a higher level of imports from Canada, have helped contributed to the record levels of inventories at Cushing. Increased flows of crude oil from these two sources, along with expectations for future increases, have consequently created the need for additional storage at the hub.

Weekly data show that as of June 1, 2012, crude oil inventories held at Cushing were 47.8 million barrels, the highest level on record and very close to total working storage capacity as of March 2011. However, due to the growth in storage capacity between March 2011 and March 2012, the utilization rate for working storage capacity at Cushing has actually declined over the past 14 months.

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

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

Cushing Crude Oil Inventories Rising in 2012

Crude oil inventories at the Cushing, Oklahoma storage hub, the delivery point for the NYMEX light sweet crude oil futures contract, are up 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.


Don't miss today's 50 Top Trending Stocks

Pipeline Reversal Of Fortune

Don't think of it as crude oil prices rallying, think of it as Brent crude prices falling. Oil prices surge above $100 a barrel for the first time since last July as the "broken" global oil market gets fixed in a big way. Conoco Phillips had a big payday by selling its interest in Gulf Coast Seaway pipeline in Cushing, Oklahoma to Enbridge Corporation which will reverse the flow of oil out of instead of into the NYMEX delivery point in Cushing, Oklahoma. This is a big step to ending the bottleneck in Cushing and allow the bonanza of Canadian oil sands crude and shale crude to be sent to Gulf Coast refiners that have too often had to rely on foreign imports of crude.

Followers of crude imports realize the cost of imported crude was rising as evidenced by what became a record differential between the Brent Crude versus West Texas Intermediate spread. West Texas Intermediate (WTI), which historically Brent Crude traded at a premium to, reversed on a host of challenges. In Oklahoma the influx of crude exceeded refiners ability, or at least desire, to run crude at those rates that would use the influx of new sources of oil. In the Gulf Coast where supplies were tight the infrastructure did not exist to transport the oil in sufficient amount. The US pipelines remain the most popular transport option, carrying about two-thirds of U.S. oil.....Read the entire article.


A Good Trading Education = a Good Trader = Good Profits….Watch INO TV

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


Here’s a Great Alternative to High Price Trading Courses



Share

Oil Inventories Saw Huge Declines Across the Board

The inventory report by the US Energy Department surprised the market as crude inventory fell -4.84 mmb to 327.5 mmb in the week ended December 18. The draw was significantly more than market expectation and represented the third consecutive decline. Although stockpile at Cushing, Oklahoma rose +0.57 mmb, the pace of increase has moderated and should narrow the discount of WTI crude to Brent crude.

Distillate stockpile declined -3.03 mmb, following a -2.95 mmb draw in the prior week. This is the second consecutive weekly fall. The market anticipates further draw in coming weeks as the weather gets abnormally cold. Gasoline inventory dipped -0.88 mmb to 216.3 mmb, offsetting the build in the previous week.

Rally in crude oil price accelerated after the report. The benchmark contract surged to 76.53, the highest in 3 weeks. For oil products, heating oil price jumped to 2.038 while RBOB gasoline also climbed to 1.965.....Here is the charts!

MarketClub Alerts in Action and Explained

Share

Cushing Oil Storage Rate Causing Energy Worries

There may be millions of reasons for Oklahomans to be concerned about the glut of crude oil being stored in Cushing. Some in the state’s oil and natural gas industry insist an influx of oil from Canada has affected the market at Cushing, where the New York Mercantile Exchange sets its prices. Enid oilman Harold Hamm said he is concerned that Cushing’s vast oil storage could decimate the market, much as the storage level did about 15 years ago in Wyoming under similar circumstances. He said prices there dipped as far as $24 a barrel below market price when new pipelines brought in as many as 235,000 barrels of Canadian crude oil a day.....Complete Story

Today’s Stock Market Club Trading Triangles