Beware the Ides of March and be aware of the drop in distillate inventories in this week's oil inventory report. Even Julius Caesar himself might have reason to be concerned about Europe and their cold winter and concerns to rebuild supply ahead of an Iranian oil embargo. The Energy Information Administration reported that distillate fuel inventories dropped by 4.7 million barrels, much further than expectations, last week falling into the middle of the average range for this time of year.

Reuters News reported that diesel differentials in northwest Europe edged up again on Wednesday, supported by lower refinery runs, particularly in the tight Mediterranean market, refinery outages and a slight pick- up in German demand. Planned maintenance was underway at the Ineos Grangemouth refinery in Scotland, with the closure of a CDU earlier this week. The refinery has the capacity to process 210,000 barrels of crude oil a day, with diesel accounting for some 24 percent of the output. Traders added that northwest Europe differentials were buoyed by the tightness in the Mediterranean market as the simple refineries there have cut runs. With the high crude price their margins have been coming down, said one diesel barge trader. However, he saw some of the tightness easing soon as more arbitrage cargoes are coming from Asia and the United States. Phil Flynn, analyst at PFGBest Research in Chicago, said the decline was most probably caused by rising diesel exports. One trader also reported hearing of a pickup in demand from Germany, although these are still quite small volumes. They have started slowly purchasing - until this happened we were never going to see diesel gain any real momentum, he said. Sentiment is definitely shifting - we can see this in the paper, which is well bid.

The Energy Information Administration also reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.8 million barrels from the previous week. At 347.5 million barrels, U.S. crude oil inventories are in the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.4 million barrels last week and are in the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories remained unchanged from last week.

Yet despite the fact that, as reported by Bloomberg News, President Barack Obama said Iran is running out of time to enter serious negotiations over its nuclear program, as sanctions increasingly squeeze Iran's economy. Obama said at a White House news conference with U.K. Prime Minister David Cameron that Iran has been offered every opportunity to resolve the confrontation through negotiations with the U.S. and its partners. Instead they have sought to delay, to stall, he said. The window for solving this issue diplomatically is shrinking, Obama said. I'm determined to prevent Iran from getting a nuclear weapon. Oil was facing headwinds from the improving outlook for the US economy.

That is right! We have the possibility for more demand and lower prices as the government securities markets are signaling an earlier than expected rise in interest rates. Dow Jones reported that the FOMC says fed-funds rate will stay exceptionally low at least through late 2014, but committee's acknowledgement of moderate economic expansion prompts futures traders to expect a rate hike sooner than that. Market now fully priced for FOMC to lift funds rate to 0.5% at its meeting in late January 2014, up from 72% chance Tuesday, and 60% chance Monday. Shorter-dated contract prices in 76% chance for 0.5% rate after early November 2013 meeting, up from 44% chance Tuesday, and 34% chance Monday. FOMC has held funds rate in record low range of 0% to 0.25% since December 2008. Higher rates mean a stronger dollar which will moderate demand growth and because of that we could see more demand and a lower price.

Loyal readers of the Energy Report all know that US oil production is rising but do you happen to know that just 5 states produced a whopping 56% of all of US oil production? Can you guess what those 5 states are? Well we'll add another to just the latest prodigious reports from Energy Information Administration some of these states may surprise you and some may not.

One is Texas! That's right! Good times for for the Lone Star state! And the state that gave us Texaco not only sitting at number one but number 1 with a bullet! The EIA says that the Eagle Ford shale formation in south Texas contributed to gains in the state's oil production, which averaged 1,425 thousand barrels per day (bbl/d), the highest level since 1997. It is very likely that Texas production will continue to rise.

Number 2 is Alaska. Alaska's production fell for the ninth year in a row, averaging 563,000 barrel per day. So remind me again, why are we not drilling in ANWAR?! Alaska's oil revenue and therefore their checks, are starting to shrink.

And number 3 is California but beware, it seems that they could soon be falling down the chart. They are facing a new challenge from the up and comer, North Dakota. Everybody knows oil production in North Dakota is up for the year, but North Dakota's December monthly oil output passed California to become the No.3 oil producing state! Take heart though. California still leads the way in fruit and nut production!

And the feel good comeback story of the year is Oklahoma! OK production averaged 204 thousand barrel per day during 2011, topping 200 thousand barrels for the first time since 1998. Yeeha!

Don't depend on the brackets to add some excitement to your day! Get the Power to Prosper and me every day! Tune to the fox Business Network! Also make sure you get a trading program in place which I can hep you do when you get a free trial to me Daily Trade Levels! Call me - Phil Flynn - today at 800-935-6487 or email me at to open your account.

_________________________ Phil Flynn Research Division 806 W. Washington Blvd. Chicago, IL 60634 312 563-8344 / 800 935 6487

There is a substantial risk of loss in trading futures and options.Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.