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Thursday, March 10, 2011

Bearsih Chinese Trade Data Oil Prices Decline

Bearsih Chinese Trade Data Oil Prices Decline ; The fighting in Libya continues with no signs that an end is any closer. However, it seems the markets are slowly working the fact that the Libyan situation will be lingering for an extended period of time and a major portion of Libya crude oil will remain shut-in. That said the market is also working into the mix that Saudi Arabia has increased production and at the moment there does not seem to be any supply shortfall anyplace in the world. The west continues to discuss ways to be involved but so far that still remains in the talking stages with little likelihood of any military intervention or no fly zone anytime soon. As such Gaddafi continues airstrikes on the oil hubs further reducing the likelihood of oil flow returning in the foreseeable future.

The big wildcard and one that poses the most upside oil price risk at the moment is the possibility of tomorrow's scheduled day of rage protests in Saudi Arabia. If this grows into a major event it is likely to add a whole new level of concern to the market and is likely to result in yet another price surge. If it turns out to be a non-event I would then expect oil prices to drift lower. Saudi Arabia is so important at the moment in that it is the largest exporter of oil in the world and it holds the vast majority of the world's surplus crude oil capacity. Any interruption in Saudi Arabia would in fact result in a major shortfall of oil in the world causing the consuming countries to begin to draw down their SPR oil as well as commercial inventories. For the next twenty four hours it will be all eyes on Saudi Arabia.

Barring an interruption from Saudi Arabia the world currently has more than enough oil to more than offset a prolonged situation in Libya. In fact the market in the US is still very well supplied. If we look at the following chart of US inventories of gasoline and distillate fuel (diesel and heating oil combined) one can quickly see that inventories have been in an upward trend since bottoming back in 2008 when oil prices surged to around $147/bbl basis WTI. Although refined products inventories in the US have been supportive over the last several weeks (see below for a more detailed discussion on current inventories) as the chart shows inventories today are still well above the levels from 2008 when the price of oil was soaring. Clearly we do not have a shortage of anything at this point in time and much of the price increase we have seen in crude oil as well as in refined products at all levels of the infrastructure is strictly based on the perception that there may be a shortfall down the road. For the latest updates PRESS CTR + D or visit Stock Market news Today

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