Oil Prices - May 12

[dan_s]

The front month contract for WTI crude rose to fresh 2016-yearly highs on Thursday, following a bullish report from the influential International Energy Agency (IEA). In its May Oil Market Report, the IEA said world output rose by 50,000 barrels per day on an annual basis last month, sharply below a yearly gain of 3.5 million bpd in April, 2015. At the same time, the IEA upwardly revised global demand growth for the first quarter of 2016 to 1.4 million bpd, amid strong gains in India, China and surprisingly in Russia. The IEA believes the strong gains help offset a modest increase in global oil supply by 250,000 bpd to 96.2 million bpd in April. The mild uptick transpired despite a deepening decline in output among Non-OPEC producers.

"Stock builds are beginning to slow in the OECD: in the first quarter they grew at their slowest rate since the last quarter of 2014 and February saw the first draw in a year," the IEA said in the report. "In March, OECD commercial inventories fell by a slim 1.1 million barrels, with preliminary data for April suggesting that stocks rebounded while oil held in floating storage rose.

Oil prices, though, fell off session-highs after market intelligence firm Genscape reported a build of approximately 549,000 at the Cushing Oil Hub in Oklahoma for the weekly period through May 10. Cushing, the main delivery point for NYMEX oil, is the largest storage facility in the U.S. The inventory build continued to move higher at Cushing in spite of the closure of several major pipelines last week due to the effects of the devastating wildfires in Western Canada.

On Thursday, employees at Suncor Energy, Inc., one of the largest oil sands nationwide, began returning to work, union sources told Reuters. The workers' return following a several-day absence provides indications that production in Alberta could be on the verge of resuming its normal cycle. Last week, a host of oil companies throughout the region were forced to cease operations, sending more than 1 million barrels of oil offline.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, jumped more than 0.25% to an intraday-high of 94.16. The index is still down more than 4% since early-December.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.

[dan_s]

Oil closed a bit higher today after yesterday's big gain. We are getting to the point in the cycle where the speculators who jump in to short oil on each move up are getting a little nervous. They've been burned a few times. I thought the IEA Oil Market Report was bullish, since I think they have a bias to keep fuel prices as low as they can for as long as they can. In the last cycle, they so badly missed the increase in demand that it was comical. I think they are way off on demand growth again. Low oil prices does have an impact on demand.

If EIA reports another draw from storage next week, we could see WTI move over $50 by the end of May. It is normal for refiners to draw down inventories from Mid-May through Mid-August as they produce more summer blend gasoline this time of year. Summer blends require more crude oil. BTW the top energy sector analyst for Credit Suisse predicted that we would see $50 in May over a month ago.

Great Lake area could see sub-freezing temps at night over the weekend.

La Nina (and maybe a Super La Nina) is now being confirmed by NCEP and NOAA. You can get an idea what this means for next winter weather at the link below.
http://theweathercentre.blogspot.com/

A long hot summer would do wonders for the natural gas price.