The American Petroleum Institute’s inventories data released yesterday afternoon revealed a continuation of the recent trend of a draw in supplies to the tune of an over 5 million barrel net change week to week. The oversupply story has been the chief rationale for this past years decline in energy pricing, a scenario that could be changing slowly. This is the third week in a row of reported draws in the API data. Should we see this mirrored in the more influential EIA data later this morning, then we could see the recently sluggish energy market poised for a possible resurgence of the corrective rally of the past several weeks.
I touched on Saudi Arabia's fuel exports in yesterday’s report, citing a nearly 10 year high in those figures. Today, it has been reported that even with those exports booming, the Saudis have in fact been turning down Chinese requests for more product. Similar requests from China's government to Kuwait and other Middle Eastern oil producing nations fell on deaf ears as well. This would seem to indicate that the Saudis relatively new commitment to producing refined products is gaining market share, forcing it and other similarly positioned sovereignties to hold on to more raw material. Additionally, it highlights just how well global demand is keeping up with the massive amounts of supply, as evidenced by the WTI data of recent weeks. Finally, it would seem to refute the reports of the past several weeks speculating that China was at or near capacity in its strategic reserves, which would possibly reduce a rather notable portion of demand for energy products.
It should also be noted that the Saudis significant investment in refineries could swing the 'crack' equation, as more refined production out of the Middle East could lead to more competitive pricing globally. More and more, it would seem that the refined products should have a greater influence on the price discovery across the energy sector, rather than the raw material. This shift of importance toward the downstream end of the fuel process may have the effect of a cap on upward price movements, as more sources for consumer use keep the pricing low.
Natural gas soared higher to 3.10 yesterday before getting slammed back down to the mid 2.90s. There didn’t appear too much in the way of fundamental news driving that price discovery, but rather a sharp correction based on technical exhaustion and topping formations. This type of ebb and flow of pricing is necessary to a rally and even healthy. Today, we are seeing the price action once again continue the slogging climb back above 3.00 dollars, in what appears to be a resumption of the now trending rally higher. We continue to look toward the magnetic draw of the gap in price discover left during the sell off late last year between 3.25 and 3.30.
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