Oil prices are falling due to oversupply concerns despite the fact that there was a very disturbing incident in the Strait of Hormuz. The U.S. military reported that several Iranian rockets were within 1,500 yards of the aircraft carrier USS Harry S. Truman on Saturday on what the U.S. military is calling a provocative act. Yet despite that news, oil is falling because the American Petroleum Institute again surprised the market reporting 2.9 million barrels increase in crude-oil supply. This flew in the face of market expectations of a million barrel plus decline. Yet it is almost amazing the lack of market response to the news in the Strait of Hormuz which in the past would have moved the market dramatically to the upside.
Consider the fact that the Energy Information Administration says that the Strait of Hormuz is the world's most important choke-point with an oil flow of 17 million barrels per day in 2013, about 30% of all seaborne traded oil. Yet with a market focused on a glut of supply and a warm winter, have no fear of an event that could disrupt this supply. It may be because the market perceives that there will be no repercussions against Iran and even if they fire near our ships, there is no chance that the sanctions on the Iranian regime will be lifted.
Then you get into the seven degrees of separation, like if the weather is 7 degrees warmer we will use less natural gas and heating oil and if it is 7 degrees colder, we will use more. Natural gas and heating oil bounced on colder weather forecasts but now there is a chance the weather may be moderating. We saw the impact of warm weather in the API weekly report as distillate supply rose by 2.081 million barrels. Natural-gas supply is also above normal despite the fact that the gas dedicated rig count now sits at the lowest recorded level going back to 1987, when Baker Hughes (N:BHI) began compiling the figures as reported by Dow Jones. It is because supply is 17% above a year ago and 12% above the five-year average.
Dow Jones also reported, “China’s export of refined products rose 68% year-over year in November while imports dropped 21%. Still, analysts expect China’s crude appetite to remain high as the country continues to take advantage of the low oil prices to fill its strategic reserves and local refiners capitalize on the cheap crude.”
U.S. gasoline demand is still robust as the API reported supply only increased by 500,000 barrels. U.S. gasoline year over year demand growth is close to a 30-year high.