Markets are lower across the nation as petroleum inventories are expected to be growing. This is a story that seems to be getting old, but must come to an end eventually. The only way to solve a supply crises it to use more or produce less. With disappointing economic figures flowing through the news, it looks like it oil producing countries will be driving the market train.
There is one major problem- the Middle East has jumped into the cold war. With Iran and Saudi Arabia removing diplomats and tensions building fast after Saudi Arabia executed 47 people including a Shiite cleric. Conflict isn’t new to the Middle East, but this time something is different looking through the oil markets. The markets didn’t move with the Middle East. For the first time inventory concerns out traded Middle East conflicts. Thanks to a wealth of supply created by fracking decreasing US reliability on the Middle East, their power over oil prices is waning.
Fracking is essentially horizontal drilling. Allowing access to additional oil that was once not worth the cost to retrieve.
The EIA released their inventory numbers today stating “At 482.3 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 10.6 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 6.3 million barrels last week and are near the upper limit of the average range for this time of year. Propane inventories fell 1.4 million barrels last week but are well above the upper limit of the average range.”
As of noon today, front month WTI Crude was down $1.65/bbl, RBOB down $.085/gal and ULSD is down $.040/gal.
WTI Crude Chart
If Iran and Saudi Arabia can begin to work together and OPEC agrees to lower their production we could expect a bounce in fuel prices. Till then, the Inventories in the US are keeping price low, and the increased supply from fracking have essentially capped the market ushering in an era of the new normal.
