February 28, 2011

February is the shortest month and because of the alignment of the days it also had the fewest trading days. However, there was great volatility in the month because of the unsettled situation in North Africa and the Middle East. Last month the overthrow of Mubarak brought WTI prices into the $90 range. This past month the Libyan crisis plus anti-government demonstrations in Yemen and Bahrain have sent prices above $100. Now comes reports of demonstrations in Oman. The risk premium has sent the prices soaring, especially Brent which has reached $120.

Saudi Arabia has made good on its promise to increase production to cover for any losses of Libyan production. Kuwait is now considering increasing its production. As long as there are no street demonstrations in either kingdom, markets will be somewhat calm. For US consumers, the large and continually building inventory in Cushing has served as a buffer against even greater price hikes and volatility.

For the month WTI, +$4.90, $97.06; Brent +$11.16, $112.02; gasoline +23.95¢, $2.7301; distillate +18.12¢, $2.9208.

February 25, 2011

The breather taken yesterday for the tide of rising prices ended quickly today when WTI settled 92¢ higher at $98.17 while Brent closed $1.01 higher at $112.12. Analysts understand that IEA and the rest of OPEC, especially the Saudis, can turn on the tap and replace the lost volumes of Libya. However, they are concerned that the unrest is not over and that something more will happen in Algeria and in Saudi Arabia despite the peace overtures being made by the respective governments to the restive populations.

Why are retail prices moving so quickly? News anchors and reporters have a problem understanding how the market works at the retail level and why crude futures going up today for a contract 30 or 45 or 60 days into the future will cause the price on the street to go up the very next day. Most refiners have to include a futures component in their pricing and that component has an immediate effect. In essence the future is today when we're talking how the price of crude affects the market. It is the only way that crude suppliers and refiners can keep up with market volatility.

Big upswing for the week: WTI +$12.07, $98.17; Brent +$9.54, $112.12; gasoline +18.32¢, $2.735; distillate +21.49¢, $2.928.

February 23, 2011

Sometime during the trading session today, WTI passed $100 before closing at $98.05. Brent has spent most of the month over $100, passed $111 and closed at $111.20. What's heating the market up is not just the unsettled situation in Libya with a madman using his troops to fire on demonstrators. It is that the whole situation in North Africa and the Middle East is unstable. The Saudi petroleum minister may promise to produce enough to cover the shortage caused by the Libyan industry under siege but what if demonstrators appear on Saudi streets. Will Saudi Arabia be able to supply or will the regime need to focus on survival. WTI was last at $100 in October of 2008 when it was headed down. This price channel is headed the wrong way if the economy is to improve. Every $10 increase for crude means a 0.25% to 0.50% decrease in GDP.

Today, WTI +$4.23, $98.05; Brent +$5.41, $111.20; gasoline +6.28¢, $2.712; distillate +11.22, $2.9035.

February 18, 2011

The geopolitical situation continues to control crude price movements as both WTI and Brent fell slightly once the U.S. announced that it was monitoring the movement of two Iranian warships through the Suez Canal on their way to Syria. Both crudes had been trending upward prior to the White House announcement.

Bahrain and Libya are experiencing violent demonstrations with deaths caused by police and military reactions to those demeonstrations. Brent traders are normally buying futures for non-U.S. interests and Brent has been significantly more affected by the events in the Middle East than WTI. WTI has been shielded from greater price volatility because of the continuing inventory build in the Cushing, OK, terminals.

The past week has seen very little volatility in either product as the Egyptian problem is not as pressing. The fundamentals of Cushing and the geopolitical issues of the Middle East weigh greater on the minds of analysts than the action in the currency markets or how China is dealing with its economy.

For the week, WTI -24¢, $86.10; Brent -10¢, $102.58; gasoline +2.17¢, $2.5518; distillate -1.88¢, $2.7131.

February 17, 2011

WTI rose for a second consecutive day but Brent took a breather and dropped moderately. The Middle East unrest that has now spread to Yemen, Bahrain, and Libya, is weighing in on NYMEX but Brent traders were unsure that prices will go much higher. The Iranians have confirmed that they have dispatched two warships to go through the Suez Canal and onward to Syria and the Israelis have alerted the world of their concern. It is thought that the Iranians are trying to distract the world for the heavy handed repression of the anti-government demonstrations there.

The spread between WTI and Brent dropped to $16.34 from $18.88 yesterday. Last year, Brent was frequently selling at a discound and the difference between the two averaged less than a dollar.

Today, WTI +$1.37, $86.34; Brent -$1.17, $102.68; gasoline -1.66¢, $2.5301; distillate -4.28¢, $2.7323.

February 16, 2011

The geopolitical dimension of crude futures pricing took center stage today as WTI rose moderately while Brent increased significantly on news that Iran was sending warships through the Suez Canal with the potential of a confrontation with Israel. There are also anti-government demonstrations in Bahrain, Yemen and Libya that are weighing on the minds of government officials and traders. The differential between WTI and Brent grew to $18.88 as crude and gasoline inventory continued to build in the U.S. while any armed conflict in the Middle East will probably curtail shipments of oil to Europe. Some see this impending conflict as being deliberately provoked by Iran to get Iranians to think of something else other than the demonstrations against the Regime.

Traders and analysts who make their living off the volatility of the markets having been upset because the large supply stocks in the U.S. are limiting the market's volatility while Europe is more affected by the Middle East crisis and any threats to supply there.

Today, WTI +64¢, $84.97; Brent +$2.15, $103.85; gasoline +5.63¢, $2.5467; distillate +4.51¢, $2,7751.

February 15, 2011

WTI continued its two week slide as even the violent demonstrations in Bahrain could not interest traders into buying higher. In anticipation of tomorrow's EIA inventory report, the data that was available for WTI and gasoline was for stock builds while continued draws in distillate were expected. Economic news was also bearish and the dollar gained in late trading against the basket of six currencies. However, every trader is now paying attention to the continuing crude inventory build in Cushing that has kept WTI insulated from geopolitical events. Tomorrow's EIA report will either confirm the continuing build or presage greater future demand. The Brent premium narrowed as Brent fell even more than WTI.

Today, WTI -48¢, $84.33; Brent -$1.38, $101.70; gasoline -2.7¢, $2.4904; distillate -2.04¢, $2.73.

Valentine's Day, 2011

It's Valentine's Day and the analysts who trade Brent must be seeing red because the Cushing terminals' discount for NYMEX crude is now $18.27. It averaged $0.76 last year. Egypt may not be the great worry it was the past three weeks but there is an undercurrent of unrest in Algeria, Yemen, and Iran. The Middle East crudes are bench marked off Brent and any geopolitical problems arising in the area will affect Brent first. In the mean time, the huge builds of inventory of NYMEX-based crude in Cushing continues to act as a counterweight to upward price pressures. However, product prices continue to move opposite rather than in tandem with crude and both saw moderately high increases today.

Today, WTI -76¢, $84.81; Brent +$2.04, $103.08; gasoline +5.19¢, $2.5174; distillate +5.38¢, $2.7504.

February 11, 2011

After reaching a high of $92.16 twelve days ago, WTI dropped below $86 right near the price levels of January 27 when crude settled at $85.63. Mubarak's fate was the geopolitical catalyst for the price moves the past two weeks and his resignation helped to move product lower yet again. Also helping in pushing prices down was the rise of the dollar in today's currency trading.

Brent did not follow WTI down as it went up 17¢ to $101.04. The $15.47 spread between Brent and WTI is the most so far between the two bench mark products. Supplies are tightening in Europe and Brent manifests that market situation while WTI reflects the burgeoning supply situation in Cushing.

For the week, WTI -$3.46, $85.57; Brent +$1.20, $101.04; gasoline +3.02¢, $2.4655; distillate -2¢, $2.6966.

February 10, 2011

The markets are not paying attention to technicals or fundamentals but are unsure of the geopolitical situation in the Middle East, especially Egypt. All the talk prior to the final settlement was that Mubarak would resign. With that news the market moved sideways , barely dropping 4¢. Brent dropped quite a bit more as did gasoline and distillate.

The trend remains bearish despite the 44 month high crack spread of $22.83. Gasoline and distillate inventory showed builds. With Cushing showing continued inventory builds, the Brent premium fell today to $13.14 from a really high $15.34 yesterday.

Today, crude -4¢, $86.73; Brent -$1.24, $100.87; gasoline -5.6¢, $2.47; distillate -6.28¢, $2.7107.

February 7, 2011

On January 28th analysts finally realized that there was unrest in Egypt and crude rose $3.68 to close at $89.31. The following Monday WTI closed over $92. However, despite the continuing crisis in Egypt, the price has been moving down and closed at $87.45 today. Just prior to the the demonstrations in Egypt, there was talk about how the high levels of crude at the Cushing terminal were distorting bench mark pricing because the rest of the world did not have access to the product stored there. Of course, crude being fungible with premiums and discounts available for the extra costs to transport and refine into products, it still served as a bench mark. However, this large storage cushion, in the current Middle Eastern problem, performed the job that the Strategic Petroleum Reserve was supposed to do. It enabled the markets to take a breather and not panic. It also helped that OPEC members Saudi Arabia and Kuwait talked about increasing output should events require.

Brent continues to settle at much higher premium price than normal. The problem in Egypt is much closer to those markets but also there is no great inventory that cushions prices like the terminals in Cushing currently hold.

Today, WTI -$1.57, $87.46; Brent -56¢, $99.28; gasoline +1.45¢, $2.4498; distillate -1.29¢, $2.7937.

February 4, 2011

Crude traders saw through the spin of 9% unemployment and focused on the disappointing low number of 36,000 new jobs created in January as both WTI and Brent fell and so did both gasoline and distillate. The strong statements from Saudi Arabia and Kuwait earlier in the week about keeping crude and product supply open despite the unrest in Egypt has stabilized the market for fundamentals. The real unemployment rate which takes into account people so demoralized in their job searches that they have stopped looking is probably 17% and when fewer jobs than expected are created, analysts see falling demand in the future.

The dollar also finished higher, further pulling crude down. It has been an interesting week since prices unexpected fell after reaching a two year high on Monday.

For the week, WTI, -28¢, $89.03; Brent +49¢, $99.84; gasoline -2.26¢, $2.4353; distillate +2.56, $2.7166.

February 2, 2011

It seems that for the moment we have reached the Egyptian uprising premium as WTI moved sideways while Brent move slightly higher. Gasoline, however, fell on news that inventories were building higher than expected while distillate fell despite the increase in stock because of the extremely cold weather in the Mid-West and and Northeast. Even the news of violence in the streets of Cairo really did not cause a major jump in price as analysts are weighing the true costs of a Suez Canal and Sumed pipeline shutdown. The high inventory levels in the U.S. also insulates NYMEX pricing somewhat from the political problems in the Middle East.

Today, WTI +22¢, $90.96; Brent +73¢, $102.36; gasosline -1.71¢, $2.50; distillate +2.76¢, $2.7816. Beginning today, I'll include Brent pricing. The Europeans use Brent as their bench mark and the premium between the two products is substantial. Also, the two bench marks are trending differently, Brent is showing a backwardation trend while WTI is still contango.