Cushing Oklahoma drop allows oil bulls to romp. Oil surged as gold bugs purged and the Energy Information Agency reports an in implausible drop in oil supply. Of course supplies don't matter when the recession is most likely over and the dollar is not worth the paper it is printed on. But let's start with EIA and supplies anyway.
The Energy Information Agency arm of the Department of Energy blindsided the market with what seems to be a ridiculous drawdown or 4.7 million barrels in crude supply. The bulk of the drawdown came in Midwest and Cushing Oklahoma and by judging by the other numbers, the drawdown does not make sense. How does crude fall in those areas when according to other EIA data it should not. The EIA showed that crude runs fell to 86.9 percent. Refinery inputs averaged 15.0 million barrels per day and were 56 thousand barrels per day below the previous week's average. Gasoline production also declined averaging 9.0 million barrels a day. Distillate production did increase slightly but if you are to the believe the EIA, the refiners are using more crude to make fewer products.
Well maybe it's the imports you say. Well according to the EIA imports were down a bit, but was it enough to cause the big dent in supply? The EIA says that U.S. crude oil imports averaged 8.9 million barrels per day last week, down 192 thousand barrels per day from the last week.
I could get into other minutia that would bore many of my readers but the bottom line is that the drop by the EIA is either over stated or they are playing catch up from previous weeks. I feel very strongly that the API report is probably a more accurate reflection of crude supply at this point and the EIA is now getting more is step with where the API was all along.
Regardless of whether or not we increased or decreased, the bottom line is we have plenty of crude. Now some may worry about the recent trend of dropping stocks and signs that perhaps demand might be bottoming out. I mean when you have the Fed telling us that the better than expected recession is most likely over and industrial production is coming in better than expected, it does give the bulls some hope. Yet remember where we are in terms of supply. Despite these weekly massive drops, crude supplies are still 9.8% above year ago levels. The forward demand cover for oil is sufficient to cover 22.1 days of current demand. That according to David Bird at Dow Jones is above the five-year average of 20.3 days.
The truth is this market is less concerned with supply than they are with gold and the dollar. Even if the EIA reported a build in supply, oil most likely would have rallied as the dollar continues to get obliterated. One might start to wonder whether or not the global central banks are aware of this potential major threat to the global economy. Oh sure Ben Bernanke should be patting himself on the back for saving the global economy but he needs to be aware of the weak dollar which could be the world's next big threat. If left unabated, commodity price inflation could start a renewed bout of demand destruction and business, already weakened by the recession, will be back on the ropes. The Fed cannot be too complacent about dollar weakness because the lack of confidence in the greenback will lead to the lack of confidence in US business in general!
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Watch out for a blow off spike!
Sell November crude at 7498 - stop 7590.
We're short October heating oil from apprx 18200 - lower stop to 18400.
Stopped on short October RBOB from apprx 18300 at apprx 18500.
Sell November natural gas at 477 - stop 507.
The Dan Flynn Corn & Ethanol Report
In last nights action the Corn tried to rally after Wednesday's long liquidation.The range on December Corn was 341 1/2 to 330 and as I write it's current at 331 1/4 which is down 5 cents.
Iowa farmers are talking about record yields in the midst of our first frost scare.
I recommend to buy dips and use tight stops otherwise Look Out Below !
On the Energy Front we look overpriced in the Crude Oil which will be conducive to the Ethanol Market.
People are tired of filling up their Gas Tanks with Black Gold.
Maybe Yellow Gold (Corn) or a Sugar based alternitive based Ethanol is not that far out of the picture !
Have a Great Trading Day !