Better Fill up today

[frawin]

Feb-09 Crude settled at $37.78, up $0.19 on the day, Feb-09 Natural Gas settled at $5.184, down $0.358 on the day.

[frawin]

Feb-09 Crude is trading at $38.775, up $0.995, Feb-09 Natural Gas is trading at $5.165, down $0.019.

[frawin]

Oil Rises a Second Day as OPEC May Make Deeper Production Cuts

By Grant Smith and Christian Schmollinger

Jan. 14 (Bloomberg) -- Crude oil rose for a second day after OPEC leaders said they may deepen production cuts to bolster prices.

OPEC members Saudi Arabia and Venezuela signaled yesterday that output will be reduced further. Saudi Arabian Oil Minister Ali al-Naimi said February output will be "lower than the target" set at the group's Dec. 17 meeting. The U.S. Energy Department will likely say today that crude oil stockpiles gained a third week, according a Bloomberg News survey.

R20;OPECR17;s policy right now is to verbally intervene in order to influence the market," said Bayram Dincer, a commodity analyst at Dresdner Bank AG in Zurich. "Today, prices are responding to their talk about production cuts."

Crude oil for February delivery rose as much as $1.67, or 4.4 percent, to $39.45 a barrel and was at $38.85 at 10:36 a.m. London time on the New York Mercantile Exchange. Oil has tumbled 59 percent in the past year as fuel demand falls because of a global recession.

Brent crude oil for February settlement gained as much as $1.17, or 2.6 percent, to $46 a barrel on LondonR17;s ICE Futures Europe exchange. The contract expires tomorrow. Brent was $6.78 more expensive than New York crude, the widest gap since Dec. 19.

The more active March contract was at $47.98 a barrel, up 54 cents, at 10:22 a.m. London time.

Saudi Arabia is currently producing 8 million barrels a day, about level with its 8.051 million barrel-a-day allocation, al-Naimi said at a conference in New Delhi yesterday.

Qatari Oil Minister Abdullah bin Hamad al-Attiyah, also in New Delhi, said today that the right price for oil is $70 a barrel.

Last month the Organization of Petroleum Exporting Countries agreed in Algeria to cut supply by 9 percent to 24.845 million barrels a day starting Jan. 1.

Further Reduction

R20;WeR17;re willing to cut 2 million more, 4 million more barrels to preserve the price of oil," Venezuelan President Hugo Chavez said in a speech to the National Assembly in Caracas yesterday.

U.S. crude-oil stockpiles probably gained 2.75 million barrels in the week ended Jan. 9, according to the median of 14 responses by analysts in a Bloomberg News survey. The department will release its weekly petroleum supply report today.

Inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, also rose, according to the Bloomberg News survey.

The Energy Department reduced its forecast for crude prices this year by 15 percent to $43.25 a barrel as the economic slump in the U.S., Europe and Japan cuts global fuel demand. Global demand will shrink by 810,000 barrels a day in 2009 from last year to 85.1 million barrels a day, it said.

R20;A severe recession is expected,R21; said Dresdner's Dincer. "After the expiry of February futures I expect in the short- term another test of lows around $33."

Contango Structure

The price of oil for delivery December 2009 is 55 percent more than for February, allowing traders to profit if they have the ability to store crude. This structure, in which the subsequent month's price is higher than the one before it, is known as contango.

Oil supplies at Cushing, Oklahoma, rose to 32.2 million barrels the week ended Jan. 2, up 81 percent from a year earlier and the highest in at least four years, Energy Department data show. The city is the delivery point for oil futures traded on Nymex.

R20;Storage at Cushing is near a historical high," said Ken Hasegawa, a commodity derivatives sales manager at Newedge Group in Tokyo. "No one can buy because there is no place to store. So the spread between the front month and the second month will expand more."

[frawin]

Below are excerpts from today's EIA weekly crude and product inventory report. The US crude and product demand continues to drop and inventories continue to grow.

UU.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) increased 1.2 million barrels from the previous week. At
326.6 million barrels, U.S. crude oil inventories are above the upper limit of
the average range for this time of year. Total motor gasoline inventories
increased by 2.1 million barrels last week, and are in the upper half of the
average range. Both finished gasoline inventories and gasoline blending
components inventories increased last week. Distillate fuel inventories
increased by 6.4 million barrels, and are above the upper limit of the average
range for this time of year. Propane/propylene inventories decreased last week
by 2.6 million barrels and are in the upper half of the average range. Total
commercial petroleum inventories increased by 8.2 million barrels last week and
are above the upper limit of average range for this time of year.

Total products supplied over the last four-week period has averaged 19.7 million
barrels per day, down by 4.0 percent compared to the similar period last year.
Over the last four weeks, motor gasoline demand has averaged 8.9 million barrels
per day, down by 2.1 percent from the same period last year. Distillate fuel
demand has averaged about 4.1 million barrels per day over the last four weeks,
down by 2.4 percent from the same period last year. Jet fuel demand is 11.0
percent lower over the last four weeks compared to the same four-week period last
year.

[srkruzich]

Looks like we're putting the hurt on opec.  They keep dropping production, we keep dropping demand.  Wonder how long they will keep it up.

[frawin]

Steve, they are in a dilema, high energy cost brought us to a World Recession that may turn into a World Depression. OPEC has to be careful or they will push the World Economy over the edge. It will be interesting to see where energy prices go in the next few months. The negative side is that the US is doing nothing to increase our own supply, drilling is grinding to a halt in many areas and Money for alternate and renewable energy is drying up.

[frawin]

Feb-09 Crude settled at $37.28, down $0.50 on the day, Feb-09 Natural Gas settled at $4.97, down $0.214 on the day.

[frawin]

Feb-09 Crude is trading at $37.675, up $0.395, Feb-09 Natural Gas is trading at $4.975, up $0.005. 
Weekly Natural Gas Storage Report comes out today.

[frawin]

I thought this was an interesting article that some of you might find interesting as well.

Where Is Oil Going Next?



By CLIFFORD KRAUSS

HOUSTON — From the Indian Ocean to the South Atlantic to the Gulf of Mexico, giant supertankers brimming with oil are resting at anchor or slowly tracing racetrack patterns through the sea, heading nowhere.

The ships are marking time, serving as floating oil-storage tanks. The companies and countries leasing them for that purpose have made a simple calculation: the price of oil has fallen so far that it is due for a rise.

Some producing countries are trying to force that rise by using the tankers to withhold oil from the market, while traders are trying to profit by buying cheap oil now to store and sell at a higher price later. Oil storage has become so popular that onshore tank capacity is becoming scarce.

Only six months ago, companies up and down the energy pipeline were rushing oil to market, struggling to keep up with galloping demand and soaring prices. Now, with the global economy slumping and people driving less, demand for oil has plunged — and the same companies are acting in ways that would have been unimaginable until recently.

Oil producers are shutting down rigs, refiners are producing less gasoline, and investment planning throughout the industry is in turmoil.

The problem for the companies is not just that prices are lower, but that they have become volatile — historically, a sign of an unstable market whose direction is uncertain. Between Christmas and a week ago oil prices soared 40 percent, only to reverse course almost as sharply in recent days. Just last week, the price of a barrel of crude oil dropped by nearly 12 percent in one day alone.

R20;The oil markets are suffering acute whiplash," said Daniel Yergin, an energy consultant and author of "The Prize," a history of world oil markets. "Price volatility is adding to the sense of shock and confusion and uncertainty."

The wild price swings are a continuation of last year's trends, when the price of a barrel of oil swelled to nearly $150 in July from just below $100 in January before collapsing to less than $35 last month. Daily oil prices rose or dropped by 5 percent or more 39 times, versus just four times over the previous two years. The only recent year that was comparably volatile was 1990, the year Iraq invaded Kuwait.

The continuing volatility is sending waves of anxiety up and down the complex production and investment chains of the oil world.

A year ago, oil producers and refiners could not move their products fast enough to meet growing world demand and chase rising prices. Now, with demand and prices slumping, they are sitting on 327 million barrels at tank farms around the country, particularly at Cushing, Okla., a major storage hub and a crossroads for pipelines. That is more than 40 million barrels more in storage than this time last year, and more than 30 million barrels higher than the five-year average.

The mounting buildup has come during the last 100 days or so, as consumption of oil fell behind imports and domestic production.

With storage tanks filling up onshore, private and national oil companies, refiners and trading companies are storing another 80 million barrels aboard 35 supertankers and a handful of smaller tankers, the most in 20 years, according to Frontline Ltd., the world's largest owner of supertankers.

The different players have different reasons for storing oil, whether onshore or offshore.

National oil companies are hoping to reverse the price slide by holding oil off the market. Iran alone is reportedly using as many as 15 tankers to store crude oil in hopes that higher prices will prop up its economy, which is dependent on oil exports.

Private trading companies like Vitol and Phibro are storing oil in expectation of higher prices. They are taking their cues from markets where traders buy and sell contracts for future delivery of oil, which are signaling higher prices down the road.

Adam Sieminski, chief energy economist at Deutsche Bank, noted that a trading company could buy oil at the spot price of nearly $40 a barrel, store it and sell a contract to deliver it in a year for about $60. "You pay between $6 and $10 a barrel to store it, and you can make $10 a barrel," he said. "That's why Cushing is filling up rapidly and people are leasing tankers."

One small example of how the price uncertainty has affected behavior is the Devon Energy Corporation, an Oklahoma City company that in recent years has excited the energy world with announcements about expensive new investments in Canadian oil sands and deepwater oil exploration projects.

The company recently put off announcing details of its drilling program. Chip Minty, a Devon spokesman, said: "The volatility we have seen in the last year, and particularly the last few months, is making it more difficult to plan a drilling program that is funded through cash flow. Everybody is laying down rigs."

DevonR17;s caution is a sign that the go-go days of investment are giving way to more modest expectations. Schlumberger and Halliburton, the two top oil service companies, are cutting jobs. Many oil companies are delaying investments in more expensive projects, like mining Canadian oil sands. A couple of refiners face bankruptcy.

The volatility is showing up at the retail level. Drivers who only a few weeks ago were finding relief from the summer's $4-a-gallon gasoline are now shaking their heads as the average national price for unleaded regular gasoline has surged to $1.79, from $1.62, since Dec. 30.

Oil volatility has complicated the efforts of automobile companies to figure out future strategies. Toyota had to suspend production at one plant that builds the Tundra pickup truck for several months when gasoline prices soared last summer. Toyota then delayed completion of a second plant meant to build the Prius hybrid when falling gasoline prices led to weakening demand for that fuel-efficient model.

The gyrations in prices affect shipping and other businesses around the world. Cathay Pacific, one of many airlines that use fuel hedging strategies, recently acknowledged that it had hedging losses of hundreds of millions of dollars as a result of the collapse in fuel prices.

The slowdown in oil investment is so rapid that some analysts say they believe it is a matter of time before shortages appear that will push oil prices to new heights and damage the economy.

From day to day, the price swings reflect a push and pull among the various players in the market, and diverging geopolitical and economic trends.

After months of sharply dropping prices, psychology on the oil markets seemed to shift strongly after Christmas — sending oil prices to almost $50 in January, from just below $34 on Dec. 19.

Traders were putting investment money back into oil as OPEC appeared to be serious about cutting output. Fighting between Israel and Hamas in Gaza appeared to threaten a broader Middle East conflict that might crimp oil supplies. The conflict between Russia and Ukraine over natural gas shipments threatened European supplies, raising fears that Europeans might have to switch from natural gas to oil.

But the mood shifted just as quickly last week when the Energy Department reported that crude oil inventories at Cushing had climbed by four million barrels, to 32 million barrels, for the week that ended Jan. 2, the highest since the government started tracking supplies in 2004. That number jumped again in a report on Wednesday, to 33 million barrels, near Cushing's operating capacity of 35 million barrels.

Spooked by the signs of surplus, traders drove the spot price of oil down to $37.28 a barrel on Wednesday, a drop of 1.3 percent.

Gasoline, meanwhile, has become pricier at the pump because refiners have been producing less of it. Profits from refining have been so thin over the last several months that refiners have been earning little, or even losing money, on producing gasoline. So now they are storing oil or selling it to traders, or retooling their refineries to produce less gasoline and more products with better profit margins, like heating oil, diesel or jet fuel.

Valero has curtailed gasoline supplies by extending maintenance time at some refineries and cutting production at eight of its 16 refineries. "There is not a lot of incentive right now to produce gasoline because there is lots of it," said Bill Day, a spokesman for Valero, the nation's largest refiner. "Obviously it would be better for us if there were more stability in prices."

While Goldman Sachs has predicted the slumping global economy will soon drive the price of oil down to $30, a top Kuwaiti oil official predicted recently that big production cuts by the Organization of the Petroleum Exporting Countries would soon push oil prices back up.

R20;ItR17;s a sure bet that both will be right," Mr. Yergin said, basing his opinion on the sharp swings of recent days.

Analysts foresee prices staying volatile for much of the year.

R20;Volatility is just another way of saying uncertainty," said Adam J. Robinson, director of commodities at Armored Wolf, a California hedge fund. "The demand outlook is very uncertain, the general outlook for prices is very uncertain, and the supply outlook is very uncertain."




.

[redcliffsw]

Yes sir, that was interesting.  Sometimes we can forget that markets do change from time to time.