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March Madness Starts Early As Oil Price Fall On Relatively Light Volume

By Phil FlynnCommoditiesMar 13, 2018 09:02AM ET
www.investing.com/analysis/the-energy-report-031318-200297591
March Madness Starts Early As Oil Price Fall On Relatively Light Volume
By Phil Flynn   |  Mar 13, 2018 09:02AM ET
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Monday Madness

March Madness started early in oil as prices fell on relatively light volume and focused on bearish news about ignoring bullish news at its own peril. Traders sold oil off on a report that showed an increase in supply in Cushing Oklahoma, but it is about time. The Nymex Storage hub has seen supply fall at a record pace in recent weeks and seeing that we are deep into refinery maintenance we should start to see the supply recover. Yet, they ignored a report about global oil inventory tightening. According to a report, OECD oil inventories for the first time in 3.5 years have fallen below normal because of a massive inventory draw of 46 million barrels in February which is 6 times the normal draw rate. The global oil balance remains in a sharp deficit despite gains in U.S. production. Oil bears have been bearish on hopes of rising shale production but what we are finding that light shale oil is not what refiners want.

A must read in The Financial Times reports “In the oil market, not all barrels are created equal. By the end of this year, the U.S. oil industry will be pumping 11m barrels a day of crude, the highest in its history and more than either Russia or Saudi Arabia. These barrels, boosted by the shale revolution and increasingly exported, are critical for keeping the market well supplied as a fast-growing global economy lifts demand for diesel, jet fuel and petrochemicals. But in the industry, debate is growing, some would say concern, over just how well-suited the shale oil coming out of the U.S. is for meeting this rising demand.”

“The issue, critics say, is that U.S. shale is far lighter — having been released through narrow fissures in rocks by hydraulic fracturing — than gloopy tarry crudes most people think of when they picture a barrel of oil. This has potentially huge implications because refiners, who turn crude into usable products, have spent decades investing in plants capable of processing far heavier oils that were once expected to dominate supply. The lighter shale barrels, some say, are just not as good for making the products — especially diesel, jet fuel and other so-called middle distillates — that the world increasingly needs.”

They warn of a potential crunch in years to come caused not by an outright shortage of crude, but by refiners scrambling to compete for more conventional barrels as U.S. shale is found wanting. This is another reason why we have warned not to put too much trust in shale. Shale oil is giving bears a false sense of security while we are seeing the demand for diesel rise and supply stay below normal. So, when we talk about global inventory we must remember that some of those lighter grades may not get used. It may give us an overinflated view of oil storage, meaning that supply is tighter than many thinks.

Global oil inventories have plummeted in recent months and with the upcoming summer driving season ahead of it we are facing much higer prices at the pump this summer. There will be pressure on U.S refiners to crank out product and that is going to keep the demand for crude oil very strong. Diesel supply is tight and global demand rising and that should set the stage for our big traditional spring rally.

March Madness Starts Early As Oil Price Fall On Relatively Light Volume
 

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March Madness Starts Early As Oil Price Fall On Relatively Light Volume

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Do Deikins
DoRight Mar 13, 2018 11:34AM ET
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Head-slap!  It is far easier to convert from processing heavy to light, than from converting from light to heavy.  The product mix will be different, with less low-priced tars and asphalts and generally less pollutants.  For those we can use canadian tar sands crude.
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Ben Barnhill
Ben Barnhill Mar 13, 2018 10:43AM ET
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How much of Cushing went to Memphis?
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