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.
Friday, April 8, 2011
Thursday, April 7, 2011
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
Today: WTI +$1.59, $110.30; Brent +48¢, $122.67; RBOB -0.53¢, $3.18; HO +2.35¢, $3.21
Wednesday, April 6, 2011
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.
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.
Monday, April 4, 2011
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.
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.
Friday, April 1, 2011
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.
For the week, crude +$2.54, $107.94; Brent +$3.10, $118.69; RBOB +10.68¢, $3.1513; HO +8.08¢, $3.1355.
Thursday, March 31, 2011
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.
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.
Tuesday, March 29, 2011
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.
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.
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