Shake It Off
Oil prices shook off concerns about the Canadian Oil fires and the firing of Saudi Oil Minister Ali al-Naimi and instead focused on sign of rising supply in Cushing Oklahoma and the return of a gasoline refinery that put downward pressure on gasoline.
After starting strong, oil traders started to question whether or not there will be a long term impact from the Canadian Oil Sands fires. There were reports that shifting winds and rains reduced some of the risk to supply and some oil operators have already restarted some production. Goldman Sachs (NYSE:GS) predicts that the U.S. could lose close to 14 million barrels of oil but downplays its impact due to the abundant supply the U.S. has in storage. Of course the market has changed, reversed course on its concerns so it is not clear that the final chapter about the impact from these fires has been written. Andrew Weissman, of EBW Analytics Group, says that although prices could stay under downward pressure near-term,the timing of the Alberta wildfires may coincide with refineries coming online to prompt larger withdrawals in late May—likely leading to upward pressure on oil prices mid- to late-month.
On top of that it is unclear of the longer term impact on the Canadian economy. Bloomberg News reported Intact Financial Corp (TO:IFC) may post insured losses of as much as $1.1 billion Canadian or ($850 million) from the wildfires in Alberta, which could dent the Canadian economy harder than Hurricane Katrina hit the U.S.
Oil prices also lost ground after Genscape reported a 1.4 million barrels increase in crude oil supply last week. That was more than was expected as it was assumed that the fires in Canada may have cut some of that supply. We may have to wait to see that impact later on in the month at which point we should see oil prices rise.
We are seeing a correction of April’s strong up move. As refiners start to come out of maintenance we should see oil renew its rally. The market is consolidating before what should be another mover higher. Odds that the Fed will raise rates in June is falling after weak jobs data in the U.S. and that should keep the dollar rebound under control. Surging gasoline and diesel demand will keep refiners running.