Energy Market Updates

First the usual news - US Crude Supplies once again dropped (to 386.9 million) and more importantly perhaps, Cushing levels dropped again as well. Cushing stocks are down 49% since the Keystone's lower leg started moving its supply to Gulf Coast Refineries. WTI has been climbing steadily the past couple days, and some analysts are predicting WTI hits $105 soon. (Hopefully not!) We also saw gasoline and ULSD up between 0.6-0.9% throughout the day with the intraday high for gasoline hitting 3.0021 and ULSD's intraday high hitting 2.9027.

Brent was up as well on production announcements from OPEC, and an Al Qaeda affiliated group's seizure of the city of Mozul in Iraq. OPEC kept their production target the same, despite the growing fighting. The obvious concern with Iraq is that increased fighting will further disrupt supply. Currently, all exports from the country (a little over 3 million barrels per day) have to go by tanker through the Persian Gulf - the main pipeline that runs from Kirkuk to Turkey has been closed since March. The capture of Mozul and the uptick in violence in the area has caused repairs to the pipeline to be suspended completely at this point. Further supply disruptions are basically a 50-50 proposition at this point, which is making the European markets understandably nervous, and pushing Brent prices up. 

In Virginia, House Majority Leader Eric Cantor got blindsided by his Tea Party primary challenger in an upset that literally no one saw coming. Bloomberg News noted today that there is some serious concern among Wall Streeters, as Cantor was generally seen as an ally for them in the Republican party - supporting TARP and the Export-Import Bank, etc. Wall Street appears to be concerned about potential gridlock in Washington going forward if this primary is an indication of how November may shape up, especially given the debt ceiling issue looms large again in March. (Incidentally, gridlock in Washington is probably good news for the rest of us!) At any rate, between the political upset, and the World Bank revising growth expectations down (specifically for the US) stocks drew back, with utility, industrial and financial stocks the most impacted. 

Last week as we discussed, the EIA reports for the prior week (ending April 11) saw inventory builds in US Crude supplies while gasoline inventories drew down. Crude Inventories actually hit their highest level since June 2013 and production hit its highest level since 1988. 

Platt's is estimating that this Wednesdays EIA report (on the week ending April 18th) will show inventory builds of  up to10 million gallons. As a result of the anticipated build, WTI has dropped more than we've seen in the previous 3 months. Brent Crude, the European benchmark, wasn't quite so lucky.

Compared to WTI's over 2% drop, Brent was down less than one percent on continued Ukrainian tensions (stop me if you've heard this one before...) and on the heels of Vice President Biden's speech this morning in Kiev, in which he expressed US support for Ukraine. The sentiment, though true, wasn't very helpful for the already fragile (read: falling apart) agreements with Russia to reduce friction in the area, especially coming one day after Secretary Kerry demanded that Russian Foreign Minister Lavrov control seperatist activity in Ukraine, with the Russians firing back that the US should intercede in to control "Ukrainian militia activity" in the region and today insisting that any agreements reached in Geneva "have nothing to do with us".  

The global headache that is Ukrainian/Russian/US relations at the moment would likely have resulted in a lot of market volatility and price spikes, but consistently increasing inventory levels have seemingly kept it at bay, particularly domestically. Hopefully that trend continues, and we start to see some progress towards resolution in Eastern Europe.

Crude - both Brent and WTI - continued to drop today on speculations of another inventory build on tommorows EIA report. According to a Bloomberg survey, tommorows report may show increases of 1.8mbl up to 2.5mbbl. The prior weeks report (the tenth increase in a row) indicated US Crude inventories climbed to 385 million barrels, the highest on hand since November, with PADD 3 numbers (Gulf Coast) hit over 200 million barrels, the highest since 1990. 

Additional domestic factors in the market drop is an anticipated failure of US Manufacturing increases to meet projected gains. Internationally, China is showing a drop in manufacturing index to below 50, signaling a contraction in the sector. Euro zone manufacturing is expected to show stagnant to weak numbers as well. Overall, global economic indicators are not very confidence inspiring, and in combination with increasing supply, and the impending end of the heating season in the US, we should see the market continue a downward trend, assuming EIA reports back speculative numbers. 

Last week's jobless numbers saw an unanticipated drop of 10,000 initial jobless claims. It will be interesting to see what this Friday's numbers look like - a continuing downward trend would be a positive economic sign, but time will tell what the overall impact will be. 

(Image Credit: EIA.gov)