Oil rises on increased U.S. demand, but China slowing

Oil is going one way but supply is going another.

While oil looks like it is breaking out, driven by renewed war fears and an uptick in US demand, there are signs that demand in China is slowing and this may give the bulls some pause. Still the big question is after the terrorist attack in Bulgaria and the turmoil in Syria, will anyone have the courage to be short into the weekend? It is unlikely that Israel will attack Iran over the weekend and the war premium is a little high, so maybe the bears might try to make a bit of a stand.

According to Dow Jones, China's commercial crude-oil stocks in June grew at their highest monthly rate this year due to a significant decline in crude at major refineries, leading to a drop in oil-product stocks. The state-run Xinhua news agency said that June commercial crude-oil stocks rose 4.8% from a month earlier.

They attributed the drop to a significant decline in crude-oil refiner runs and tracked the slowdown in China’s economy. The report showed that crude runs hit a 12-month low in June as refineries cut operating rates due to weak domestic demand and thin margins. China processed 35.98 million metric tons of crude oil in June, equivalent to 8.8 million barrels a day, a decline of 0.6% from the same month a year earlier, official data showed last week. Refinery throughput was in line with lower crude imports in June, at 21.72 million tons, equivalent to 5.3 million barrels a day which was the lowest level since December. Oil-product stockpiles fell by 7.56% from a month earlier, with Commercial diesel inventories down 8.8% and gasoline stocks falling 7%, Xinhua said.

The report has slowed the bullish momentum and European concerns still are in the background. Currency fluctuations have also had an influence as relative safety is influencing Forex movement. The Japanese yen has quietly performed well and the euro dollar seemed to be stabilizing. With the currencies impacting the movements in commodities many producers are seeking to hedge their currency risk and that is becoming more critical as demand is slowing. Overnight the dollar is rising as oil falls.

We almost hit the natural gas number on the head yesterday. The EIA reported 28bcf build! Hot temps and nuke outages!

Ethanol production, which hit a two year low in response to drought stricken corn prices, is causing the same old food versus fuel debate. Dow Jones reported that, "A just-released study sponsored by livestock groups finds that the renewable fuels standard (RFS2) needs to be reformed because it has destabilized corn and related commodity prices since first implemented in 2005".  "The increases we've seen in commodity prices are strongly associated with the RFS mandate," said Thomas Elam, president of FarmEcon LLC which released the study. "At the same time, we haven't seen the promised benefits on oil  imports or gasoline prices. This means that while Americans are forced to pay more for food, they're also not seeing lower prices at the pump; it's a lose- lose situation."

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Phil Flynn




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