Crude oil ran into tech trouble as the U.S. tech sector is under fire leading to a sell-off in stocks against a backdrop of rising oil inventory. The data breach scandal at Facebook is only one of many quick rising problems for the many tech firms and I am sure somewhere the Winklevoss twins are smiling. As the whisper number suggested, oil inventories increased by a whopping 5.32 million barrels, according to the American Petroleum Institute (API). This was led by an increase in U.S. imports, a 1.66-million-barrel build in Cushing, Okla,., and a 7-million-barrel sale from the U.S. Strategic Petroleum Reserve to feed our oil-hungry refineries.
The U.S. sale from the reserve was expected at some point but the timing of the purchase shows that refiners need supply now because even with the increase in supplies this week, oil supply are below the average range for this time of year. Platts reported that the sale was made to at least five different companies, rumored to be Atlantic Trading & Marketing, Phillips 66, Marathon Petroleum, Motiva and Trafigura, according to sources. Phillips 66 was sold the largest amount of crude, according to Platts sources. While we are seeing great increases in U.S. shale oil production, the truth is that many U.S. refiners have lighter condensate than they need for heavy crude to ramp up.
The sharp increase in U.S. supply may temper prices. The fear that the tech sector sell-offs may bleed into the overall economy may hurt prices. Yet, we feel that those fears are overplayed. While the technicals on oil look weak in the short run, it does not change the bullish outlook in the long run.
While a slowdown in tech is a potential threat to the economy, the reality is that Facebook and Twitter don’t run on oil. The oil sector of the economy was more concerned with a trade war and if that is averted we will raise our oil demand expectations. A deal with China to potentially open their economy is very bullish for oil demand expectations as well as global economic growth.
Refiners are buyers as they must rebuild gasoline supply ahead of summer. The API reported that gasoline fell by 5.80 million barrels last week as strong demand and the drawdown of winter fuel blends led to the decline. U.S. gasoline demand is at a record and even with a drop-in consumer confidence, in part caused by an uptick in gas prices, the outlook for demand is still increasing for this summer.
The API also reported that U.S. distillate supply fell by 2.24 million barrels. Demand for distillate is going to stay strong as this stupid winter weather hangs on and farmers start to get their tiller, planters and tractors filled up as they prepare to plant our nation's crop.
Global supply may be tighter than we think as well, In Fact on Morning with Maria on the Fox Business Network, the Saudi Finance Minister, Mohamed al-JADAAN said "several countries will be running out of supply" probably due to underinvestment. On top of that, Saudi Crown Prince Mohammed bin Salman told Reuters that Riyadh and Moscow were considering greatly extending a short-term alliance on oil curbs that began in January 2017 after a crash in crude prices, with a partnership to manage supplies potentially growing to a 10-to-20-year agreement. The Crown Prince wants to build on its recent success of winning back its influence of global oil prices. As I said before, anyone who doubted OPEC’s resolve to reduce oversupply, should not underestimate them now.
Endless winter is keeping natural gas high! Winter into April! OK, I have had enough. How about you? Buy natural gas puts and think spring. Planting intentions and a stock market that is a wild consolidation zone should keep things interesting.