Oil Is Taunting OPEC
Oil prices are weaker this morning as traders are predicting that OPEC will continue their policy of flooding the market with oil. While Saudi Arabia's oil minister says he will listen to other producers, it is not certain if they will actually hear anything. The market is almost daring OPEC to stand pat.
The eagerly anticipated report from the International Atomic Energy Agency (IAEA) on Iran’s intentions behind their nuclear program and whether or not Iran’s program really was built for peaceful purposes will be released in the coming days. The report is not supposed to be critical as to whether or not the sanctions on Iran are actually lifted.
In the meantime, numbers from the American Petroleum Institute (API) suggests that the oil glut continues to grow. The API is reporting that U.S. crude supply increased by 1.6 million barrels. They also reported that crude oil supply in Cushing, Oklahoma rose by a modest 500,000 barrels.
Gas demand remains strong as the API reported that gasoline inventories rose by 1.9 million barrels. This comes as RBOB gasoline futures bounced with the new ethanol mandates that sent RINs on a tear. For those of you who don’t know, RINS are Renewable Identification Credits (RIN) and is a serial number assigned fuels so refiners can prove that they are meeting the Federal guidelines. They can either use the actual ethanol or buy credits from the open market to meet the mandate. On Monday, the EPA raised the amount of corn-based ethanol to be blended with gasoline for 2015 by 3.9% to 16.93 billion gallons while boosting 2016 volume by 4.1% to 18.11 billion gallons. The 2014 volumes rose 2.2% from 15.93 billion to 16.28 billion gallons.
Refiners in turn had to buy more credits and that assumed cost went right in to the price of RBOB, which bounced off of the news. It also sent ethanol prices higher as the demand for that fuel will continue to rise.
While oil prices are low, Dow Jones reports that, “Congress as soon as this week taps into the Strategic Petroleum Reserve as a way to help fund the $305B measure. The bill reaps $6.2B from the sale of up to 66M barrels of oil from the reserve, which is near its capacity at 714M barrels, starting in FY16. Washington is confident oil prices are going back up: That puts the price of oil at about $94 a barrel, more than double today's price, which has been hovering just above $40 a barrel."
The government selling oil may be another sign the low in oil may be near.
Oil prices are taunting OPEC yet the market still has failed to close below $40.00 a barrel. The market also seems resigned to the fact that the Feral Reserve is going to raise rates and while the long lend of the yield curve in the treasuries make new highs, the dollar is running out of steam and the euro looks poised to rally. Today not only do we get oil inventories from the Energy Information Administration, we also will get comments from Fed Chair Janet Yellen. Any break from any of these events should be bought.
Long term we feel a pickup in global economic growth against a back drop of oil project cancellations will turn the price higher in spite of OPEC. The false narrative that somehow shale oil producers will just turn the spigot back on to meet demand growth over the next few years is not possible. The decline rates of shale will be much faster than the other projects that have been canceled so it is still a great time to position for a long term move!