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| Daily Jurojin - Monday, June 22, 2009 |
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Monday, June 22, 2009 Crude oil in a funkIs crude oil losing its appeal just as the key American driving season warms up? Crude oil and gasoline prices reversed course in the final hours of Friday's trading as traders dismissed efforts to disrupt Nigerian supplies. Earlier on Friday a heavily-armed gang exploded a pipeline just two days after another was attacked. Activists trying to unseat foreign oil companies and the efforts of the Nigerian government have forced a 20% supply displacement from Nigerian since 2006.Yet the supply disruption seems to have been discounted with traders' fears growing that rising U.S. imports will force refineries to boost their output. Rising prices over the last two weeks have been based on expectations that, as the global economy grows, so too will prices recover. However, the 1.5% build in gasoline inventories announced last week, making it the largest since January, is hitched to the fact that U.S. gasoline demand is 6% lower than a year ago. That hasn't stopped traders pushing the price of crude oil futures higher by more than 50% already in 2009. The Energy Department recently reported that U.S. refineries were running gasoline production at 9.13 million barrels per day through June 12 as they boosted capacity from 80.4% to 85.9%. Fears that refiners might step up output sent gasoline futures down by the greatest amount since February for a 5.8% weekly loss. At the same time gasoline inventories jumped by one quarter to 1.09 million barrels per day - the greatest level since April. Many onlookers believe that escalating prices have been getting out of hand with no commensurate rise in demand, making for an inevitable pullback. With daily fuel demand at 18.5 million barrels per day domestically it's the U.S. that represents the world's largest user leading many to scowl at the scapegoat of stimulus-led Chinese demand. It's simply a convenient argument to hang one's hat on Chinese demand. Nor should we expect any jump in aggregate global demand to support prices in excess of $70 per barrel for crude oil. It is expected to be 2.9% lower at 83.3 million barrels per day according to a recent International Energy Agency report. U.S. demand will fall two-thirds harder than the world average to 18.55 million barrels per day. That's hardly a platform for the kind of rebound that has been acting out in recent weeks in the NYMEX pits. Last week we urged Jurojin Weekly readers to take some defensive action against such a slide in crude oil using the options market. Let's hope they cash registers ring later this week. The Supreme Council of the Secret Order of Jurojin |
