March 31, 2011

Ghaddafi's forces have taken over the oil port city of Ras Lanuf and the dollar fell in trading versus the euro causing crude and products to increase significantly. Today's prices are the highest since the summer of 2008 and there is no end in sight for the Libyan fighting and Middle Eastern unrest. The QE2 has devalued the dollar and currency experts believe that the dollar is overvalued. Since the dollar is the denomination of choice for crude, its devaluation will be balanced by a rise in commodity prices including oil. Demand for products is also being forecast to increase with the summer driving season set to start in two months.

For the month, WTI +$9.66(+10%), $106.72; Brent +$5.34(+4.8%), $117.36; gasoline +37.75¢(+13.8%), $3.1076; distillate +16.18¢(+5.5%), $3.0898.

march 29, 2011

The political situation in Libya remains unsettled as both Ghaddafi and the rebels are intent on continuing the struggle towards a victorious end and only one side can win. The longer the struggle continues, the more cracks appear in other governments such as Syria, Yemen, and Bahrain. Of course, the biggest problem for world markets would be if troubles were to surface in Saudi Arabia but so far the Kingdom has shown both its largesse towards the greater population as well as armed strength and that has left the opposition unable to bring greater numbers of demonstrators to anhy public place.

The U.S. economy seems to be improving as the equities markets is on the rebound but inventories have been building and that indicates weaker than expected demand.

Japan, the world's third largest economy, is still trying to grapple with the looming nuclear disaster at the Fukushima Dai Ichi power plant. News that there was a major plutonium leak at the plant cannot make recovery efforts move forward and the economy with it.

With all these world events in mind, the biggest contributor to the pricing equation is the Middle East risk premium. Today, WTI +80¢, $104.78; Brent +47¢, $115.27; gasoline +2.25¢, $3.0458; distillate +1.98¢, $3.0415.

March 28, 2011

NATO's air forces have effectively changed the momentum of the Libyan Civil War against Ghaddafi in favor of the rebels. There was news today that the rebels could begin exporting production in a week. This positive, for greater supply, news led to a fall in both crudes and both products. There has been a feeling among analysts that prices are a bit high for the weaker than expected global demand and because of the considerable supply around the globe, especially in the bench mark storage point in Cushing. The risk premium will not yet disappear but there is strong indication that prices are too high for the fundamentals.

Today: WTI -$1.42, $103.40; Brent -79¢, $114.80; gasoline -2.12¢, $3.0233; distillate -2.3¢, $3.217.

March 24, 2011

PIGS and their debt issues have not factored into the price of oil for so long but today news that Portugal needed to be bailed out of its sovereign debt problem restrained prices. Also restraining prices was the news that the orders for durable goods had decreased meaning that the economy might be slowing down and demand for oil may not increase. The fallback in prices was tempered by the continuing violence in Libya. Deaths in Syria were also reported and there is word that Yemen's president and the top army general were negotiating their resignation.

Today, WTI -17¢, $105.58; Brent +22¢, $115.76; gasoline +2.47¢, $3.0459; distillate +0.68¢, $3.0629.

March 23, 2011

Rather than calm the waters, the no-fly zone set up by the U.S. and its allies and the bombing of pro-government forces have caused crude prices to rise even higher amid expectations of greater civil unrest elsewhere in the Middle East. Supply is not the problem and is not the problem in the foreseeable future. Crude inventories continue to build while gasoline had a larger than expected draw and distillate was flat in today's EIA report. Ever since political unrest drove out the regimes in Tunisia and Egypt, the market has been skittish about the political problem spilling out onto Saudi Arabia. The market knows that these high prices may not be sustainable but clearly is worried about being surprised by the fall of a pro-Western supplier such as Saudi Arabia.

Today: WTI +$1.29, $105.75; Brent -15¢, $115.54; gasoline +1.61¢, $3.0212; distillate -1.9¢, $3.0561.

March 22, 2011

Certain Japanese recovery with additional demand for oil and the continuing battle in Libya led NYMEX prices up in light trading. Brent and both products followed suit. The renewed fighting despite the no-fly zone indicates that there will be little if any flow of crude out of Libya any time soon. Meanwhile, the problems for the Yemeni regime continue to grow as generals have now defected to the opposition. This fighting raise the risk premium because of Saudi Arabia's proximity to Yemen.

Today, WTI +$2.06, $104.46; Brent +75¢, $115.69; gasoline +0.77¢, $3.0051; distillate +2.33¢, $3.0751.

March 18, 2011

Some analysts are beginning to believe the Tokyo Electric Power Co. (Tepco) that they are making progress and starting to cool down the Fukushima nuclear reactors because yesterday most of the market's attention was turned towards Libya and Bahrain. Ghaddafi continues to bomb his own people, however, today he unilaterally declared a cease-fire after Britain announced that it would deploy planes to stop Ghaddafi from bombing rebel positions and civilians. Bahrain also continues to be problematic as the Shia continue to demonstrate against the Sunni regime despite the deployment of Saudi and other Gulf State forces in support of the Bahraini government.

All these events have led to a resurgence of the risk premium. The potential for a quick Japanese economic recovery will lead to greater mid- and long term demand for oil as it is likely that Japan will turn to oil-fired power plants to generate electic power. The Libyan crisis, even if Ghaddafi returns to power, will likely take its toll on future production. The continued Shia turbulence in Bahrain and Saudi Arabia will raise the likelihood of greater violence and instability in the region.

Yesterday: WTI +$3.35, $101.33; Brent +$4.03, $114.72; gasoline +10.18¢, $2.946; distillate +6.26¢, $3.0592.

March16, 2011

The market is being pushed and pulled in different directions and it is hard to determine how to prioritize the factors affecting the markets. Crude inventory continued its inexorable build while both products saw significant draws because we are in early spring there will be greater demand for gasoline and diesel. Bahraini security forces reinforced by Gulf States military have had violent clashes with demonstrators and because this is next door to Saudi Arabia the risk premium must be added to prices. Ghaddafi seems poised to retake all of the rebel-held areas in Libya and this may mean that oil will once again be flowing even at a great human cost. Japan is pulling prices down because no one understands the full extent of the nuclear meltdown and its effects on the Japanese economy and whether future Japanese demand for oil will increase. A lot of push for prices to go up and a major pull to bring prices down consequently products moved big while crudes move moderately.

Today, WTI +58¢, $97.98; Brent +$2.14, $110.69; gasoline +3.82¢, $2.8442; distillate +4.02¢, $2.9966.

March 14, 2011

I'm worried about the fallout from the Fukushima plant blowing radiation down to Guam even though it is unlikely that Air Mike will be sending planes to Sendai. The markets are worried that Japan's economy is going to take a hit from the devastation of the earthquake, the tsunami, and the nuclear plant meltdown. No one seems to know if Japan will need more oil to keep the economy going and build oil or coal-fired power plants to replace the nuclear plants that have been damaged by the earthquake and tsunami or whether economic activity in Japan will fall so much that extra energy will be unnecessary.

It was because of this thinking that WTI prices went down then went up during the trading day before ending virtually flat. Brent also barely moved from last Friday while gasoline went down while distillate went up. Today: WTI +25¢, $101.19; Brent -5¢, $113.64; gasoline -2.36¢, $2.9603; distillate +3.56¢, $3.0609.

March 10, 2011

WTI and Brent were both headed for significant falls when news about Saudi police shooting rubber bullets at protesters was broadcast. Prices were headed below $100 not today but in the near future but now no one is sure what level of violence will occur in Saudi Arabia, the world's largest exporter of crude. The other news affecting the economy and crude prices were bearish. Unemployment claims went up last week and Greece's credit rating was downgraded. Analysts are worried that such a high price increase will cause the foreseen economic uptick to falter.

Today, WTI $1.73, $102.65; Brent -69¢, $115.25; gasoline -0.23¢, $3.0185; distillate -2.13¢, $3.0444.

March 9, 2011

Geopolitical events and the fundamentals of demand and supply find the two crude products in the market going in different directions. NYMEX WTI futures fell while Brent futures in Europe rose. WTI and Brent both moved upwards in the morning because of Ghaddafi's renewed attacks on Ras Lanuf, Libya's largest petroleum complex. When the EIA released the inventory figures late in the morning showing an increase of 2.5 million barrels and stocks totalling over 40 million barrels, the highest ever reported, WTI fell. The story became more complicated because both products, gasoline and distillate, showed large jumps upward when normally they would move parallel to WTI.

Today: WTI -73¢, $104.38; Brent +$2.80, $115.94; gasoline +7.19¢, $3.0208; distillate +5.42¢, $3.0657.

March 8, 2011

A week ago WTI settled under $100 but the fighting in Libya has gotten hotter and Ghaddafi seems to be making a comeback with overwhelming artillery and air power. Europeans seem unsure if they should implement a no-fly zone and the Obama administration seems uninterested and wishing only to do nothing. Only the fast rising price of gasoline seems to be pushing the White House into making any statement at all. The latest statement was to suggest to open up the strategic reserve but you don't use a short supply strategic reserve to flood an already oversupplied market with crude bought when WTI was under $30. However, the Obama administration wants to get prices to fall without approving more drilling and without interfering in the Libyan civil war.

Today's slight price decrease seems to have been caused by OPEC's continuing assurance that the Libyan short fall can be made up. I mentioned OPEC because Kuwait, the UAE and Nigeria have now joined Saudi Arabia in trying to calm the markets down. However, Saudi Arabia faces demonstrations in a couple of days and Nigeria is about to have an election and that always causes unrest throughout the country.

Today: WTI -34¢, $105.11; Brent -87¢, $113.14; gasoline -5.54¢, $2.9489; distillate -5.4¢, $3.0115.

March 7, 2011

The conflict in Libya now seems to be headed towards a prolonged struggle and the fight is now at production and marine terminal sites as well as near a refinery. Should fighting continue and affect those facilities, the damage may be unrepaired for an extended period of time and use up spare capacity currently available. Ghaddafi has proven he is not willing to go into exile and continues to bring in foreign mercenaries to fight the rebels. He has also shown a willingness to bomb these facilities from the air while NATO dithers about setting up a no-fly zone. The biggest fear is that the unrest will erupt next in Saudi Arabia and Nigeria. Nigeria is scheduled to have elections in April and violence could erupt there to stymie the flow of crude.

Today: WTI +$1.15, $105.45; Brent -92¢, $115.04; gasoline -3.92¢, $3.0043; distillate -2.06¢, $3.0655.

March 4, 2011

220,000 jobs were created in the private sector in February but this seemingly good news was not the big push as forces loyal to Ghaddafi have been counterattacking and some of the targets are oil production facilities. The longer the unrest in Libya the more inflamed the Middle East becomes. In Saudi Arabia and Bahrain it is mostly Shia against Sunni whereas the problem in Libya is Ghaddafi against his own people. The problem remains, however, the general ferment of common people against long time regimes.

Big prices increases for the week: WTI +$6.13, $104.30; Brent +$3.94, $115.96; gasoline +31.34¢, $3.0435; distillate +15.81¢, $3.0861.

March 3, 2011

It is hard to gauge the market when geopolitical currents rather than fundamentals or technicals are driving price movements. Since the self-immolation of the vegetable vendor in Tunisia back in December led to the end of the Mubarak regime in Egypt in January, analysts have been watching tv monitors for news of North Africa and the Middle East rather than the movements of the currency markets or the price channels or even supply and demand. Nobody is talking contango or backwardation because it is hard to gauge the future. Nobody is talking technical because we are in uncharted territory, the Middle East is in ferment and it is not even an Arab-Israeli confrontation but the old order is being overthrown.

There is also considerable worry that prices are moving too high too fast. The worry is that the world economy, just trying to get out of the current recession and facing the sovereign debt problem in Europe, will have a hard time picking up momentum for real growth if prices go too high. There is a secondary worry that with the world awash with oil someone is going to get caught holding the bag with these high prices. There is also the problem of which product, WTI or Brent, really reflects the world price. The Middle East unrest has widened the gap between Brent and WTI which has approached $20. The oversupply is never more evident than in the full storage tanks in Cushing, OK, that are more loaded with inventory than at any time in the past.

Today, the market took a breather as Hugo Chavez made an attempt to help out fellow dictator Ghaddafi by offering the Venezuela plan: WTI -30¢, $101.93; Brent -$1.88, $114.78; gasoline -0.5¢, $3.0245; distillate -0.84¢, $3.0493.

March 2, 2011

The unexpected draws on crude and product supplies supported the upward price movement caused by the continuing Libyan civil war and have pushed WTI over the $100 level. Gasoline has now joined distillate above $3. Ghaddafi's remaining loyalists and foreign mercenaries are counterattcking and contesting the rebel hold of cities outside of Tripoli. The longer the conflict festers, the more regional problems will surface and that includes Saudi Arabia and Bahrain. At this point, analysts are buying or selling futures for geopolitical reasons and not for technical or fundamental reasons nor are they looking at what is happening in the currency market.

Today, WTI +$2.60, $102.23; Brent +$1.24, $116.66; gasoline +3.12¢, $3.0295; distillate +3.37¢, $3.0577.