Inventories keep on growing
The crude oil market has stayed under pressure this week as inventory data had yet another build over what traders were expecting, this week we saw a grow in inventory by 5.2 million barrels, the trade expected around 3.4 million barrels. This marks about 16 weeks of growing inventory in the crude market and pushing us under $100 a barrel for the first time since the beginning of July. Since the spike to 112 dollars a barrel in August we have seen output growing and an upcoming slow in usage in the North American markets. That, with a now weaker dollar is keeping the sellers in control.
This Weeks Prices
This week started with a $101 dollar price in crude off from higher numbers the week before. Last week we saw a lot of trade getting close to the $100 mark but sellers couldn’t push below that important zone. With the growing inventories this week and a weaker US dollar we broke through the $100 mark and quickly kept pushing to find a support area. By the end of the week the $96-$97 dollar area seems to be some support with prices beginning to stabilize.
Some analysts are out with predictions that crude will remain under pressure and that in the coming months we should see prices closer to $85 dollars a barrel. The winter months see seasonally lower use and North American outputs will continue to grow.
The technical indicators are showing crude very oversold and may be due to a bounce early next week, we are looking to see the $100 dollar price in crude to be resistance on the charts and more trade next week should see prices under that mark.
Brent crude oil is the market that is the benchmark for world oil prices, it is what comes out of the North Sea region and the middle east. WTI or West Texas Intermediate crude oil is the North American crude that we see coming from Texas, North Dakota, and Canada. It is also called light sweet crude oil as it has a much lighter composition and a lower sulfur content thus being able to be refined easier.
But this begs the question “Why is brent crude usually more expensive than WTI?” The answer is that brent crude is much more costly than WTI to get out of the earth. Then you add shipping that oil clear across the ocean costs time and money as well as North America being one of the largest users of oil we are stuck buying what we need at higher prices.
In world markets we have seen more strength in brent crude oil prices than its North American counterpart. Expanded outputs in both Texas and North Dakota have been keeping the markets lower and now that we have seen inventories keep rising, the pressure is on.
China numbers were out showing a year on year increase in crude output of 2.3% and an increase in natural gas output of 9.2%. The natural gas number is showing one big trend, and that is big growth in natural gas usage in China. The world has seen the abundance of gas and its cheap prices to spur on a race to find how we can take the usage from crude oil and turn it to natural gas. The Bakken has already seen disputes among land owners and oil companies for all the gas they are flaring off.
Algerian shale gas is also making headlines as they saying to have just as much shale gas as the USA. These are just reports so far but expect that drilling will start soon and the exploration will continue.
Natural Gas and The Bakken
The race is on to see how we can start capturing the estimated $1.2 billion dollars worth of gas flared off per year from North Dakota oil drillers. As of now it has been too costly and time consuming to worry about the gas but as people see the numbers grow they are unhappy with the amount of money wasted. The gas is easily captured but then it needs to be piped to a facility that compresses it down to liquid form so it then can be transported by rail or truck. Don’t expect anything to happen overnight, the terminals and facilities needed would need to be very big operation
s but with the money lost there is someone looking to profit. There are a few companies that are spending millions building up their network to get more of the gas captured and shipped out to facilities. Roughly 29% of all the natural gas is flared off which is down from 36% in the last part of 2011. Texas and Alaska, which we would call mature drilling operations compared to North Dakotas very new operations, only burn off about 1% of the gas produced by their wells.
Look for the crude market to stay under pressure but we will likely see some higher trade next week. We should see the $100
level in crude to be a good resistance zone. If we do make new lows look for prices to decline to around $94 dollars. Since the end of September we have seen a very bearish move in the crude market, we will see higher weeks but are looking at the charts as a larger bearish trend going into the first part of the winter.
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