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Blue Point Trading Market View – June 18, 2013

oil supply vs demand 2013Oil break up – is it sustainable in Q3 2013? The EIA expects world oil production to exceed consumption in the second quarter of 2013, resulting in an average 0.5 million bbl/d build in global oil stocks, which had been consistent with recent decline in crude Oil prices. However this week Oil has broken up over the $97 resistance level on the daily/weekly chart. This resistance level has held for quite a few months. These kinds of breakouts should not be taken lightly as they often get legs for an extended move. But does this move make sense?

On the supply side, world supply are projected to increase by 1.1 million bbl/d in 2013 and 2.0 million bbl/d in 2014, with most of the growth coming from outside the Organization of the Petroleum Exporting Countries (OPEC). North America will account for much of this growth. The Oil glut at Cushing storage facility remains, where West Texas Intermediate (WTI) is priced. Inventories stand (June 7, 2013) at 3.9% more than last year. All this build in Cushing happened even as the Seaway pipeline began pumping crude from Cushing, Oklahoma to a major U.S. refining hub in Houston, Texas in May of 2012. Yes the world is a washed with Oil supply.

On the demand side, projected world liquid fuels consumption grows by an annual average of 0.9 million bbl/d in 2013 and 1.2 million bbl/d in 2014. Total US liquid fuels consumption fell from 20.8 million bbl/d in 2005 to 18.6 million bbl/d in 2012. EIA expects total consumption to rise slowly over the next two years to an average of 18.7 million bbl/d in 2014, driven by increases in distillate fuel and liquefied petroleum gas consumption, with mostly flat gasoline and jet fuel consumption. As of June 7 2013, the consumption on an annualized basis has been 18.5 million bbl/d, down by 1.1 percent from the same period last year. Clearly supply is rising faster than demand.

When looking at the thumbnail, what stands out to me is the forecast. The supply growth in Oil is quite measurable and most likely true. The forecast in Oil consumption is quite aggressive and assumes a robust global economic recovery – this coincides with most analysts – everyone is a bull now. But we have yet to really seen this in the economic data. China, emerging markets, EU and the US are all having meager recoveries. So the forecast in oil consumption could be far too optimistic, and a decline in Oil could be imminent. So what gives with this recent rise in Oil prices?

I have always felt that the Oil market is heavily manipulated by producers. They are worried, as they know all to well the Oil glut coming. They need to get prices up to lock in longer term pricing to protect the investments in production facilities they have made. So on a short-term we very well could see prices push to the $100 mark, before falling off sharply. Don’t get short though, until you see lower lows on the 4 hour chart. Also there will be an initial poke down and then another bull trap rally before this sell off really starts to kick in – trading is tricky as always. On a longer term basis, yes peak Oil may occur, but not over the next few quarters – assuming of course the unthinkable geopolitical event does not happen.

Daily Market View: (click here for the video)

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