The United States is the world's largest oil producer! Ok not yet, but we will be! In fact it may happen sooner than people think. What am I talking about? People probably do not know that the United States is the world's third largest producer behind Russia and those pesky Saudi Arabians. In fact according to Houston Chronicle, North America appears headed for an oil renaissance, with crude production expected to hit an all-time high by 2016, given the current pace of drilling in the U.S. and Canada, according to a study released by an energy research firm this week. U.S. oil production in areas including West Texas' Permian Basin, South Texas' Eagle Ford shale, and North Dakota's Bakken shale will record a rise of a little over 2 million barrels per day from 2010 to 2016, according to data compiled by Bentek Energy, a Colorado firm that tracks energy infrastructure and production projects. Canadian crude production is expected to grow by 971,000 barrels per day during the same period, with much of the oil headed for the U.S. Combined, the U.S. and Canadian oil output will top 11.5 million barrels per day, which is even more than their combined peak in 1972.Goldman Sachs has estimated the U.S. could move from being the No. 3 oil producer behind Saudi Arabia and Russia to the No. 1 spot by 2017. Yahoo Take that Saudi Arabia!

The US Fifth Fleet took exception to the fact that the Iranians said that shutting down the Strait of Hormuz would be as easy as draining a cup of water. The US Navy said that any disruption of traffic in the Strait of Hormuz will not be tolerated. Take that Iran! Oil prices fell on those comments and if the Iranian government hasn't totally lost its marbles, a shutting down of the straight is a just bluster. Then again we are talking about the Iranian's and let's face facts, it they are a few marbles short.

So with the Iran threat on the backburner the focus was again on Europe. After a better than expected Italian bond auction gave some stability, the euro fell when it got a picture of the European balance sheet. Bloomberg News reported that the euro slid to an almost 10-year low versus the yen and stocks fell, halting a five-day gain in the Standard & Poor's 500 Index, as a surge in the European Central Bank's balance sheet to a record highlighted risks from the region's debt crisis. Italian bonds trimmed gains. The ECB's balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it loaning financial institutions more money last week in an attempt to keep credit flowing to the economy during the debt crisis. Early gains in stocks and U.S. index futures came after Italy's borrowing costs plunged at an auction of 9 billion euro's of debt.

This morning Reuters reports that European stock index futures point to a higher open on Thursday, with stocks set to reverse some of the previous session's losses and revive their year-end rally ahead of a key bond auction in Italy. Dow Jones reported that Italy's latest government bond auction brought mixed results that included a welcome drop in funding costs amid fiscal reforms in Rome, but Italian bond yields remain elevated with tough borrowing conditions expected for 2012. Average yields on the closely-watched three and 10-year benchmark bonds dropped off amid a positive market reception of Prime Minister Mario Monti's €30 billion ($38.82 billion) savings measures. But the Italian treasury failed to sell the full quota of bonds with maturities ranging from two to ten years, selling just over €7 billion versus its €5 billion to €8.5 billion target. The European Central Bank again had to prop up Italian debt Thursday after the yield on the benchmark 10-year note climbed above the psychologically important 7% mark in the secondary market, underscoring the need for continued official support to keep yields down.

Oil wil watch the euro and the dollar for direction but also will get inventories today. The API shocked the market yesterday by reporting an incredible build. The API showed an increase in crude stocks of 9.57 million barrels! Aren't they supposed to show that next week? Darn shipping channels. The API also reported gas up 1.86 and distillates up 554,000. Bearish, bearish and more bearish.

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Phil Flynn
Research Division
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