Sunday, September 12, 2010

Crude Oil Outlook

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The weekly inventory report from the EIA showed that crude oil stockpiles declined by 1.853M barrels in the latest week. However, even with the decrease in inventories, the gap between current and average levels is still at its highest levels of the year. Consensus is that we'll see another weekly drop this Wednesday. The reason for this disparity is that the first week of September typically sees a much larger decline in crude oil stockpiles (3.4Mbarrels since 1983). Enbridge reported another pipeline leak and was forced to shutdown a 670,000 bpd pipeline that supplies several Midwest refineries. The pipeline was leaking several hundred barrels an hour and had to be shutdown. The oil had bubbled to the surface and was flowing down a city street. Because the pipeline is deep underground and now soaked in thousands of barrels of oil Enbridge could not begin digging until late Friday. Enbridge said it could be several days before the leak is fixed and the pipeline reopened. This caused the price of the front month contract of oil to shoot up on worries of a localized crude shortage. This pipeline also supplies Cushing OK and the delivery point for crude futures. I suspect this is a weekend challenge and reasonable thinking will return on Monday along with a decline in crude prices. Itz took a short term position Friday but exited on ProShares Ultra Short Crude OIl $SCO, may reenter Monday, currently sideline cash on UCO/SCO trades. Itz Pix continues to hold RIG, PDE, SU & WLT as energy plays. Transocean Offshore (RIG) rallied +3.52 on multiple news items Friday, Transocean said it was appealing the Swiss regulatory body ruling on its proposed $1 billion dividend. BP's new CEO, Bob Dudley, was quoted by Bank of America as saying BP would not be going after Transocean and Halliburton because their contracts indemnified them against damages even due to gross negligence.

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