Oil Price moves over $50

[dan_s]

Oil High by Phil Flynn, June 9

Oil futures surged to new highs on the year after a drop in U.S. oil supply and a huge spike in trading volume. The crude oil price overlooked the fact that U.S. oil production actually increased for the first time in 18 weeks maybe because it was up just 10,000 barrels a day and instead focused on the fact that oil supplies fell by a more than expected 3.22 million barrels.

Traders that follow these numbers know that the drop in crude oil supply would have been a lot more substantial if you subtract the increase 2.539-million-barrel build in supply on the West Coast. In the parts of the report that reflects a larger part of the country, the report on crude was much more friendly. We saw a big 3.805 drop in U.S. gulf coast supply which may indicate a couple of things. It could be that we are seeing imports being impacted by falling Venezuelan and Nigerian production. Overall U.S. crude oil imports averaged 7.7 million barrels per day last week, down by 134,000 barrel a day from the previous week. It could also be due to the fact that some imports into the Gulf were delayed due to tropical storm activity that may have slowed imports.

Crude oil supply in the Midwest fell by 1.692 million barrels and in the all-important delivery point of Cushing, Oklahoma, supply fell by a more than expected 1.363 million barrels. Supply in these two key areas should continue to fall over the next few weeks as we will just begin to feel the impact from the Canadian Wildfires in Alberta. This along with the fact that we are seeing improving oil refinery inputs averaging over 16.4 million barrels per day as refiners operate at 90.9%, should signal more drops in crude inventory in the coming weeks.

But not all was wildly bullish. The EIA reported that gasoline inventories rose by 1.0 million barrels as demand slipped 148,00 barrels a day last week to 9.568 million barrels. Still even with the drop, demand is still up 2.6 percent from last year. Yet the recent slowdown in weekly demand may indicate that consumers are showing some reluctance to the recent increases in pump prices. Gas prices have risen to $2.362 a gallon.

Gasoline production increased last week, averaging over 10.1 million barrels per day. Distillate fuel inventories increased by 1.8 MMBblpd and demand is up by 0.4% from the same period last year.

With more bankruptcies coming in the oil patch it will be interesting to see if the U.S. can continue to boost production. U.S. producers may have a window as Saudi Arabia raised prices to U.S. customers giving the U.S. producer a little better chance to compete. Maybe it was because Saudi Arabia feels they have won the price war or maybe it is because they need the cash. Moody’s down graded Arabian credit yesterday. Still the lack of capital and the negative balance sheets of many of the shale producers will make it hard to ramp up output even with Saudi Arabia calling some of the dogs off.
-------------
NEVER read too much into the weekly EIA report. The numbers that EIA reports are SWAGs at best, based on formulas. They have no way of knowing what actual U.S. production is from week to week. The operators don't know for sure what their production is until about 30 days after month end. At the current active rig count, U.S. production will continue to fall. We need double the current active rig count to stabilize U.S. production. - Dan