Friday, April 11, 2014

Vladimir, he wrote me a letter!

By Phil FLynn

While the stock market corrects, oil hangs in there on geopolitical risk after Vladimir Putin wrote the EU a letter. While I don’t have an exact copy it went something like this.

Dear EU,

I am here to write to you to try to lay out the case for me to cut natural gas supply to the Ukraine and ultimately the rest of you as well. You see it was not very nice of you to try to destroy the love the Ukrainian people had for me and trying to entice them to join your little Union as opposed to my Russian Federation. Now I will make you pay by increasing prices to what is left of the Ukraine. Ultimately either gives me the entire country or I will make you pay through the nose for your gas as well as theirs. You will have to write a pretty big check to keep bailing out Ukraine’s pathetic little economy; if you think my economy is bad just wait till you see what I do to Ukraine’s after I cut off the gas. I thought the EU was supposed to bail out the Ukraine? I am not seeing it and now if you want Ukraine you will really have to pay up! Sorry I missed you at the G whatever summit!  Stay warm and I hope to see you all soon.

Love, Vladimir

Mr. Putin’s letter sent to the leaders of Germany, France, Italy, Austria, Hungary, the Czech Republic, Poland, Slovakia, Slovenia, Croatia, Serbia, Bosnia, Bulgaria, Romania, Macedonia, Greece, Turkey and Moldova ( soon to be a Russian republic) kept the oil from falling despite some optimistic news surrounding Libyan oil exports.  Libya’s National Oil Co.  lifted a force majeure on a crude export terminal recovered from rebel hands as the army took control of Al-Hariga and Zueitina ports under a deal to end a crippling nine-month blockade by rebels seeking autonomy in the country’s east.

Yet a report that OPEC oil production dropped by over 500,000 barrel per day, the falling below 30 million barrels a day, the lowest level this year. The drop to 29.6 million barrels a day was partially in response to weaker demand and problems with production in Iraq.

U.S. oil reserves continue to rise but natural gas may need higher prices to keep producers interested. The Energy Information Administration reported that “U.S. crude oil proved reserves rose for the fourth consecutive year in 2012, increasing by 15% to 33 billion barrels, according to the U.S. Crude Oil and Natural Gas Proved Reserves (2012) report released April 10 by the U.S. Energy Information Administration (EIA). U.S. crude oil and lease condensate proved reserves were the highest since 1976, and the 2012 increase of 4.5 billion barrels was the largest annual increase since 1970, when 10 billion barrels of Alaskan crude oil were added to U.S. proved reserves. Contributing factors to higher crude oil reserves include increased exploration for liquid hydrocarbons, improved technology for developing tight oil plays, and sustained high historical crude oil prices.”

The EIA’s natural gas report was very bullish as the U.S. supply situation is looking very tight. The EIA reported that supply only increased by 4 bcf leaving supply at 826.00 billion cubic feet and a whopping 54% below the five year average. If the number continues to disappoint like this, natural; gas will make a major upside move. Get Ready.

The EIA also reported that U.S. proved reserves of natural gas(NYMEX:NGM14) declined in 2012 because of low natural gas prices. The average reference price of natural gas companies use to estimate reserves declined 34% between 2011 and 2012. Natural gas prices began to decline in the latter part of 2011 and continued to drop through spring 2012. This prompted large downward net revisions of 45.6 trillion cubic feet to the proved reserves of existing gas fields — enough to cancel out almost all the gains from total discoveries in 2012.

That should rebound but not unless we see prices rise!

Increased geopolitical risk and talk of QE everywhere helped support gold. China data and a failed bond auction along with a weaker dollar should keep gold strong. The FT reported that “The Chinese government was unable to sell all the bonds offered at an auction on Friday; its first such failure in nearly a year amid concerns about slowing growth in the world’s second-largest economy.

The failed bond auction raises the stakes for Beijing as it tries to rein in debt levels, illustrating that even the state will have to pay a higher cost for funding as banks focus more on investment risks and demand improved yields.

Traders said there was strong appetite for the government bond but only at rates above what the finance ministry was willing to pay to borrow money. The bond failure followed inflation data that showed prices fell in China last month, reinforcing the picture of a sluggish economy weighed down in part by government efforts to squeeze leverage out of the financial system.

Consumer prices fell 0.5% in March from the previous month, while producer prices remained mired in deflationary territory for a 25th consecutive month, according to figures published by the national bureau of statistics on Friday according to the FT.

Orange Juice(NYBOT:OJK14) continues its assault on two-year highs after the USDA showed just how bad the Citrus Greening disease is. The U.S. Department of Agriculture cut its estimate for the crop year ending September in a monthly report released Wednesday. The USDA expects Florida to produce 110 million 90-pound boxes of oranges for the crop year ending September, down 12% from its original estimate of 125 million boxes in November and the smallest crop since the 1984-85 crop year according to Dow Jones.

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