[+ Font] :: [- Font] :: Printable

The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn&pricegroup.com


The Energy Report Friday February 27, 2015

Oil Storage Wars

Ultra oil bears have been basing their predictions on many things but first and foremost they are betting on sharply lower prices because they believe oil storage will soon be filled. They say at that point oil producers will have to dump oil at any price just to get rid of it causing another sharp drop in prices. Yet that thin thinking may be flawed at least according to the Energy Information Administration (EIA) and other private forecasters that say that we are a long way away from our tanks overflowing.

As reported yesterday, by Bloomberg news, it seems there is more oil storage than previously thought. If you look at just the hard data from the EIA you would think that we were close to the tipping point. The EIA reported that crude storage capacity at refineries and tank farms in the U.S. at 521 million barrels at the end of September. Bloomberg points that with inventories rising 8.4 million barrels last week to a record 434 million, it may appear at first glance like supplies from the shale boom are on a collision course with tank tops.

Well the EIA says that is not the case. The EIA says that the weekly storage numbers include a few sources that aren't included in the capacity report, such as crude in pipelines and at well sites, that can add up to more than 100 million barrels of extra storage capacity.

The EIA told Bloomberg that "We still have a way to go before we can consider ourselves to be full," Rob Merriam, the EIA's manager of petroleum supply statistics in Washington, said by phone. "Once you correct for line-fill and lease tanks, we're pushing about 60 percent capacity utilization."

Which of course we have 40% more to go before the doomsday scenarios by the ultra bears actually kick in? Of course before we get to that point you have to assume that demand and production for oil will not change. Yet the evidence is telling us that not only is demand starting to rise again we are on track to see U.S. oil production fall. So markets forces are adjusting so we don't have to store oil in our swimming pools. Besides most pools around here are always full with snow.

Remember most of those that are predicting that oil will go to $25 or $10 were not even predicting that oil would be this low in the first place. In fact some of those making these ultra-bearish predictions were actually bullish before the drop. Not that you can't change your mind in trading as the situation changes but I have to think they misjudged the bearish fundamentals in the first place and are now overcompensating in the second place. The storage argument just does not hold water. It holds oil.

Of course oils dramatic fall was one of the reasons that folks started to focus on supply again and yesterday's EIA report. Yet, if it were so bearish why did the market rally 2 dollars before it broke hard again. In fact, despite the massive sell off, oil rebounded to close back above the significant $48 a barrel support line and is rolling again. What caused the sell-off was the strength in the dollar yesterday as strong U.S. data and worries about Europe cause safe haven buying in the dollar. The Euro though today is showing some life as German lawmakers approved a four-month extension of Greece's bailout in a vote in the lower house of parliament. This removes at least one risk that the market had fretted about. Now the market may focus on demand and more optimistic predictions for the price of oil like those OPEC that is predicting that Brent Oil will rebound. It already has had its best monthly gain since 2009.

On top of that we get the Baker Hugh's rig count data that based of my sources could provide bullish surprises. The rig count drop of last week may have been under reported. Last week the rig count was said to have fallen by 48 rigs. Yet private forecasters say the number really was more like 89 rigs. That could mean that this afternoon's number could show a sharp drop in rigs that has already seen an unprecedented drop.

See me on the Fox Business Network! Market Watch says I am a must follow! You can now follow me on Twitter @energyphilflynn! You can also like me on Facebook. Traders save money on fancy software and try out my wildly popular trade levels first! Call me at (888-264-5665) or Emailpflynn@pricegroup.com. If you want to start trading apply by hitting this link https://newaccount.admis.com/?office=269

There is a substantial risk of loss in trading futures and options.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

PLACING CONTINGENT ORDERS SUCH AS "STOP LOSS" OR "STOP LIMIT" ORDERS WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS. SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

Contact Phil at 800-935-6487 or pflynn&pricegroup.com.