April 29, 2011

The falling dollar remains the big story. The month to month changes are very telling. Befitting the product in most demand for the next four months, gasoline is pulling the market up and shows the greatest increases month to month.

For the month, WTI +$7, +6.6%, $113.72; Brent +$8.49, +7.2%, $125.85; RBOB +37.24¢, +12%, $3.48; HO +16.87¢, +5.5%, $3.2585.

April 28, 2011

The dollar continues to fall and causes crude to ascend, hesitatingly. The hesitation comes from the sluggish economy and the consequent fall in fuel demand. GDP was at 1.8% in the 1Q 2011. Jobless claims went up again this week and the high unemployment rate insures that fuel demand will continue to stagnate and the rising prices only add to the bad news on fuel demand. Fed Chairman Bernanke's inflationary policies may surge the stock market and commodities but rising prices without a strong economy can only bring stagflation in the near or mid-term. Thus there is hesitation about buying higher priced crude futures.

Today, WTI +18¢, $112.96; Brent -12¢, $125.13; RBOB +1.04¢, $3.4298; HO -.04¢, $3.2334.

April 27, 2011

Ben Bernanke insists on diluting Americans' net worth by continuing to weaken the dollar and thus making commodities more expensive. Bernanke's articulation of Fed policy caused crude to rise to the heights it reached on April 8 and leaves the market on the upswing similar to 2008. Analysts seem to misunderstand the draw down in gasoline and distillate inventories and ignored the continuing increase in crude inventory and the decrease in gasoline demand the past week. Refiners are obviously keeping refinery utilization down, 82.7 this week compared to 89 a year ago, in order not to oversupply the market and this has allowed them to enjoy crack spreads of of $28+. Refiners are able to do this because demand is so low and they feel no need to dilute their crack spreads by producing more.

Today, WTI +57¢, $112.78; Brent +99¢, $125.13; RBOB +6.27¢, $3.4194; HO +2.26¢, $3.2338.

April 26, 2011

The markets are clearly uneasy about the Fed's inflationary policies, the Middle East and North African violence, the falling dollar, and the high prices of commodities especially oil and its products. Today the CEO of the Saudi national oil company publicly expressed concern about high prices and its possible effects on the gobal economy. Even refinery problems reported today could not bring WTI into positive territory. Brent did move up earlier as did gasoline and distillate.

Today, WTI -7¢, $112.21; Brent +48¢, $124.14; RBOB +3.38¢, $3.3567; HO +2.92¢, $3.2112.

April 25, 2011 (96th Anniversary of the Battle of Gallipoli)

There seemed to be a holiday hangover in today's light trading that saw WTI hardly move but gasoline went up 1.43¢ while distillate fell 2¢. There is still a feeling of unease about high prices causing demand destruction despite growing demand in China. The pot of unrest in North Africa and the Middle east continues to boil as the Libyan situation remains unsettled while Syria's regime continues to command its security forces to shoot at anti-regime demonstrators. There was even the murder of an Israeli at Joseph's tomb in the West Bank by Palestian Authority security forces as a reminder of the tensions in the entire region. Today, however, was about the dollar's continuing fall and Bernanke's inflationary policies causing commodities to rise to the current heights with the possibility of even higher prices.

Today, WTI -1¢, $112.28; Brent -33¢, $123.66; RBOB +1.43¢, $3.229; HO -1.92¢, $3.18.

April 21, 2011

The weak dollar and the Good Friday-shortened week led traders to buy contracts that raised the price of crude. The Fed's inflationary policies have weakened the dollar and the markets are using commodities like oil to hedge against the diminishing greenback. Supporting oil's rise are the surging stock market and the continued fighting in North Africa and the Middle East. This week's inventory report pointed out demand that had not been previously obvious and that has also helped crude's climb.

Today, WTI +91¢, $112.29; Brent +15¢, $123.99; RBOB +3.36¢. $3.3086; HO -2.04¢, $3.1992.

April 20, 2011

Equities are surging. The dollar is falling. There were significant inventory drawdowns for crude and products. Home sales were also reported as being up. The other factor raising prices is the risk premium. All these factors led to big increases in crude and products.

The total shutdown of Libyan production and the current instability in Nigeria are not the only problems facing oil markets. There seems to be no way to confirm how much is being produced by the Saudis as their reports have not been consistent. This lack of transparency makes the markets very nervous and this disquiet shows up in higher prices.

Today, WTI +$4.23, $111.38; Brent +$2.51, $123.84; RBOB +4.19¢, $3.275; HO +6.11¢, $3.2196.

April 19, 2011

A weaker dollar pushed crude futures higher today. Initially, futures were down as analysts considered the effects of the S&P evaluation of the Federal Government's debt and the likely increase in interest rates for money to be borrowed to pay the debt. The unrest associated with elections in Nigeria also have caused the market to add additional premium to the cost of risk. Tomorrow's release of inventory statistics will probably have a great effect on price as crude and HO are expected to build while RBOB is expected to draw down as it is the season for greater gasoline demand while diesel demand tapers off.

Today, WTI +98¢, $108.15; Brent -27¢, $121.33; RBOB -1.98¢, $3.2331; HO -2.46¢, $3.1585.

236th Anniversary of the Battles of Concord and Lexington

The U.S. Government's increasing deficits and the fact that the current administration seems totally unconcerned about, in fact welcomes, growing deficits, has led to a credit downgrade and caused fears of an economic downturn. The other news was also bearish as the dollar was stronger against other currencies and the Saudis announced a cutback on production because of slack demand. The quick rise in fuel prices to near 2008 levels when crude is still $40 off the highs of that year leads to fears of demand destruction and further economic slowdowns.

Today, WTI -$2.28, $107.17; Brent -$1.60, $121.60; RBOB -2.93¢, $3.2529; HO -3.8¢, $3.1831.

April 12, 2011, afternoon ed.

When Goldman Sachs starts talking prices down, there may be bigger price issues coming up than are now visible. GS did just that today and joined the IMF in alerting investors and traders that the current price for crude may not be economically sustainable. When prices started climbing to these heights before Christmas, it was all about the risk premium necessary to be added on to the price of oil because conventional wisdom held that you never know what can happen to the region if one government falls.

Two governments, Tunisia's Ben Ali and Egypt's Mubarak, have fallen. There is still a supply glut in the market. Libya is in the midst of a bloody civil with the fortunes of Ghaddafi and the Libyan rebels changing every day and the loss of 1.6 million barrels of production. The supply glut continues. Demonstrators are shot by security forces in Syria and Yemen and the supply of crude actually grows so that Saudi Arabia has now stopped over-production. Prices may be artificially higher as risks are seen as greater than they actually are.

Gasoline prices are now approaching the heights of the 2008 pricing and the U.S. government is now predicting a 40% price increase in gasoline over the summer. Inflationary economic policies combined with prohibitions on drilling are now coming home to roost. Prices may go higher despite demand destruction because supplies will be tight even though economic activity may be lower than forecast.

Today, WTI -$3.82, $106.06; Brent -$3.47, $120.68; RBOB -$4.94, $3.1559; HO -8.99¢, $3.1675.

April 12, 2011

Despite abundant global supply, the price of oil has been climbing higher and higher for more than three months based on the risk that the Middle East would break out in greater unrest and production there would be severely limited. However, now that fuel prices are approaching 2008 levels, the greater risk may be that these high prices will destroy demand in the U.S. and Japan as those economies struggel with inflation and stagnating economic activity. Today, for the first time, analysts realized that higher prices may not be without consequences as both crude and products fell significantly.

Yesterday, WTI -$2.91, $109.88; Brent -$2.50, $124.15; RBOB -5.54¢, $3.2053; HO -6.23¢, $3.2574.

April 8, 2011

Crude and product prices are now in 2008 mode. Any news is the traders' rationale for bidding the price higher and higher. Who can blame them? The middle east is in turmoil. The Libyan regime is now targeting oil fields and NATO may have inadvertently killed rebels. The Syrian dictatorship has killed ten people in the latest round of unrest. Yemen faces more face to face fights between factions. In the U.S., there seems no solution to the budget battle and a partial government shutdown is now imminent.

The real culprit for the majority of this huge rise in crude futures and gasoline street prices is government inflationary policy. QE2 has debased the dollar in an attempt to keep equities high but it has also driven commodities higher and the dollar lower. People selling oil get paid in dollars and want to be paid without Bernanke's inflation discount. This is why gasoline street prices continue to rise despite less than stellar economic performance.

The weekly tally tells the story: WTI +$4.85 (+4.5%), $112.79; Brent +$7.96 (+6.7%), $126.65; RBOB +10.94¢ (+3.5%), $3.2607; HO +18.42¢ (+5.9%), $3.3197.

April 7, 2011

The news is conflicting. The economy continues to improve with joblessness seeming to abate and higher oil prices have not dampened demand. The dollar gained on the euro as Europe struggles to solve the Portuguese debt problem. Libya and Nigeria are still considered problematic for short and mid-term supply.

Today: WTI +$1.59, $110.30; Brent +48¢, $122.67; RBOB -0.53¢, $3.18; HO +2.35¢, $3.21

April 6. 2011

Crude is supposed to be fungible and the discounts/premiums for one or the other crude will reflect the blend demand. The current premium paid for Brent has nothing to do with specific demand but more to do with the geographic issues since most Middle Eastern crudes are the basis for the supply to Europe and the risk premium for European supply is greater. Today's $14.52 premium for Brent is approaching the highest premium levels since just before Mubarak's fall.

The other issue weighing in on the market is the high price of gasoline and the probable demand destruction for the product as prices stay at the $3.50/gallon level or rise upwards to $4.00. Cushing inventories continue to be at the highest levels ever and despite the loss of Libyan production, global crude supply is more than sufficient.

The increases today were muted despite the Libyan stalemate and the likelihood of little, if any production, coming from there. The Nigerian elections are set for April 16 and more than 50 people have been killed since the election season began.

Today, WTI +47¢, $108.71; Brent +27¢, $122.19; RBOB -1.22¢, $3.1853; HO +0.20¢, $3.1865.

April 4, 2011

As the military stalemate continues in Libya, production there has ground down to zero. The Saudis seem unable to make up the shortfall to make good on their promise. In the meantime, Nigeria and Algeria are having political problems that place their production in jeopardy. There are two contradictory forces at work here, the oversupply in the U.S. that the Cushing terminals so vividly indicate with every weekly report and the instability of Middle Eastern supply that the Brent premium denotes.

There's a general feeling that prices are too high for the demand and supply. Even technical analysts are saying that their numbers don't point to higher prices. Yet prices seem to inexorably rise and the war risk premium is what fuels the increases. However, with global demand weaker than expected, it is hard to justify prices that recall 2008's heights.

Today, WTI +60¢, $108.54; Brent +$2.47, $121.16; RBOB +1.48¢, $3.1661; HO +3.55¢, $3.171.

April 1, 2011

As the situation for the Libyan rebels worsens, the U.S. economy seems to be improving as the latest job report shows a big jump in non-farm new jobs. Also, with more money in the economy due to quantitative easing, more money goes towards the commodities including oil. These three factors together have driven crude to levels the market had not seen since the beginning of autumn 2008. With continuing bloody unrest in Syria and Yemen on top of the Libyan crisis, the risk premium continues to put upward pressure on prices.

For the week, crude +$2.54, $107.94; Brent +$3.10, $118.69; RBOB +10.68¢, $3.1513; HO +8.08¢, $3.1355.