Oil prices fell under pressure as weak data out of Japan is raising more fears of a glut of oil. A market that has already priced in fears of a China slowdown is now trying to asses economic fall-out in other consuming nations. This comes after U.S. oil rig counts rise for the 4th week in a row and OPEC is talking about record production. Even in Non-OPEC nation Oman saw its output rise above 1 million barrels a day for the first time. Japan GDP contracted 0.4% and it is reflecting the deflationary pressures we have been seeing around the globe.
Yet oil inability to close below $42 a barrel is still a hurdle that shorts may have to deal with. A close below $42 would open the door up for a test of $38, but so far the market has not been able to do that. Maybe today, as most of the volume and open interest moves from the September to the October contract, but it is early.
Turn those machines back on, I demand an investigation. After massive price spikes in the midwest, drivers are angry and we can tell by the response of politicians. Michigan Attorney General Bill Schuette led the way in a letter to BP America headquarters in Chicago saying that "Apart from complaints of price gouging and suspicions of price fixing, many constituents express disbelief that reported problems at various refineries... can cause such direct and immediate effects at the pump." He also warned gas stations to not even think about gouging consumers. This was followed by a joint letter from Michigan Representative Fred Upton (R-St. Joe County) and Rep. Jackie Walorski (R-Indiana) to the chief executive officer of British Petroleum, Robert Dudley.
"We sent this urgent letter to BP today because consumers have a right to know what is going on with the unscheduled shutdown of the Whiting refinery. Some areas of the Midwest have seen prices rise over $1 per gallon over a 24-hour period, disproportionately affecting the most vulnerable of our constituents and resulting in large unpredicted costs in getting goods to market across the region. Additionally, some are worried that speculators may force additional increases due to lack of information. Needless to say, this incident poses a serious hardship for our districts."
The Crude Export Ban is starting to crumble. Bloomberg News reports that "The U.S. agreed to allow some crude to flow to Mexico in another step toward easing a 40-year ban on most domestic oil exports. Limited shipments of crude will be exchanged for Mexican oil coming back to the U.S., said a senior administration official who asked not to be named according to government policy. Canada is the only other nation that is exempt from the prohibition on exports. Requests from less than a dozen other unidentified countries to import U.S. crude were denied, the official said."
Energy producers including Exxon Mobil Corp (NYSE:XOM). and ConocoPhillips (NYSE:COP) have called for an end to the export restrictions after a drilling boom boosted U.S. oil production to the highest level in more than 40-years. Some members of Congress have also called for an end to the policy, as prices dropped by more than half since last June. Approval from the U.S. Commerce Department comes after the same agency allowed for exports of lightly processed oil last year. "It shows the administration is going to be flexible within existing law to find homes for domestic production," said John Auers, executive vice president of energy consultant Turner Mason & Co. "With crude prices being low, export restrictions are arguably causing an even greater impediment to domestic production." Under the permits due to be issued by the end of the month, Mexico can receive the oil in return for shipping similar quantities to U.S. refineries. The U.S. crude that goes to Mexico must be refined there.