Oil leads commodities to 8-day streak higher

By Phil Flynn

Oil (NYMEX:CLQ13) demand is surging and commodities are on a tear as Ben Bernanke helps add into a buying frenzy. Oil and gasoline have led the commodities market to an eight-day winning streak, the best since 2010. The Energy Information Administration set the tone by reporting another massive drawdown in crude supply and surprisingly strong oil demand. U.S. refiners went on a tear refining over 16 million barrels a day for the second week in a row for the best back-to-back weeks since the beginning of the financial crisis responding to the strongest demand for gasoline in nine months. The only fear the bulls have is Egypt and being overbought.

While it seemed that oil was rolling on concerns about Egypt is it is now clear that there is more to the recent oil rally.  Refining runs hit an impressive 92.4%. That helped crude supply drop by a whopping 9.9 million barrels. Now normally one might expect to see products build but gasoline supply fell by 2.6 million barrels a sign that gasoline demand is going crazy.

At the same time we had refining issues. Dow Jones reported that New York Harbor spot market reformulated-gasoline blendstock, or RBOB, premiums continued to widen Wednesday amid talk of gasoline production problems at Canada's largest refinery.  Traders doing business with Irving Oil said the independent refiner has been buying F2-grade RBOB throughout the week so far, lifting premiums by about 2.75 cents.

Bloomberg reported "Gasoline rose above $3 a gallon for the first time since April after a report that inventories dropped the most in 11 weeks and demand reached the highest level since August.  Futures jumped to a three-month high. The Energy Information Administration reported that gasoline supplies fell 2.63 million barrels to 221 million, the fewest since May 31 and the biggest drop since April 19. Demand increased for a fourth straight week to 9.3 million barrels a day, the highest since Aug. 10.  "Gasoline is looking better," said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.

The EIA total products supplied over the last four-week period averaged about 19.3 million barrels per day, up by 1.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.1 million barrels per day, up by 2.5% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, up by 12.3% from the same period last year. Jet fuel product supplied is 2.9% higher over the last four weeks compared to the same four-week period last year.

David Bird of Dow Jones writes "U.S. refiners are cranking out gasoline at record rates. But gasoline sales are increasing to China, Argentina, Ecuador and elsewhere, amid slowing consumption by American motorists. Net exports of gasoline in the first four months of 2013 are up 44,000 barrels a day from the same period a year earlier, to a record 377,500 barrels a day, government data show.  At the same time, U.S. gasoline demand is down 61,750 barrels a day to a 12-year low of 8.5 million barrels a day.

David Bird says "Excess gasoline supplies in the U.S. are finding a home abroad, where emerging markets want high-quality fuel to feed their growing needs. U.S. refiners also have been able to offer competitive prices because of low domestic crude costs. At the same time, in the U.S., drivers are using more fuel-efficient vehicles, which is denting demand.  U.S. refiners, returning from seasonal maintenance and flush with rising supplies from surging shale-oil fields, are pulling down crude stockpiles, which were at an 82-year high as recently as late May. The abundant supply represented by the stockpiles had kept U.S. oil prices trading at a discount to global crude."

Then you had Old Ben Bernanke. It seems the market likes what he said and is convinced that this taper talk is on the back burner. Not only is it on the back burner, but it's been said that accommodative monetary policy is needed for the foreseeable future even after the unemployment rate falls to 6.5%.

Bloomberg News is reporting that The International Energy Agency sees a 20-year supply peak outpacing demand. Oil supply will outstrip an acceleration in demand growth next year as production outside of OPEC expands at the fastest pace in 20 years, the International Energy Agency predicted. World oil consumption will climb by 1.2 million barrels a day next year, up from 930,000 a day in 2013, the IEA said in its first monthly report with forecasts for 2014. Supplies from outside the Organization of Petroleum Exporting Countries will jump by 1.3 million barrels a day amid booming output in North America, shrinking the need for crude from the 12-member producer group, according to the report. The assessment should "give bulls some cause for alarm," the Paris-based adviser to oil-consuming nations said. "While demand growth is also forecast to pick up momentum," this "will still fall short of forecast non-OPEC supply growth."

Brent crude has lost about 2% this year, trading today near $109 a barrel on the London-based ICE Futures Europe exchange, as economic stagnation in Europe, slowing expansion in China and threats to recovery in the U.S. constrain fuel consumption. Dependence on OPEC is dwindling as new drilling techniques enable the U.S. and Canada to unlock reserves from rock formations deep underground. Global demand will average 92 million barrels a day in 2014, advancing by 1.2 million barrels a day, or 1.3 percent from this year, according to the IEA report. The agency said that today's forecast hasn't yet incorporated a reduction to 2013 economic growth estimates made by the International Monetary Fund on July 9. The Washington-based IMF trimmed its projection for global growth this year to3.1 percent, from 3.3 percent. The agency boosted its estimate for demand in 2013 by 220,000 barrels a day from last month's report, estimating that oil use will expand by 930,000 barrels a day, or 1 percent, to 90.77 million a day this year. The revision, the third increase to the 2013 outlook to be made this year, was driven by unusually cold weather in the second quarter.

Nat Gas Report Today! Short term - Cool Temperatures have been weighing on the market. Long Term - The story is getting more intriguing. Reuters reports "A bipartisan group of U.S. senators on Wednesday called on the Energy Department to speed up its planned review process for proposals to ship U.S. liquefied natural gas (LNG) abroad.  ‘We are concerned that the timeline for considering these applications may jeopardize our ability to retain a competitive position against other natural gas exporting nations,’ more than two dozen lawmakers, including top Senate Republican Mitch McConnell, said in a letter to Energy Secretary Ernest Moniz.”

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