A Break in the Fall for Oil Prices

Crude might find its fall bottom, even though its situation is tenuous at best. Crude rebounded Wednesday because of some renewed geo-political threats as well as better than expected demand signs in the weekly Energy Information Administration (EIA) petroleum status report. The first story that turned oil around was a report of an explosion in an oil pipeline in Saudi Arabia. The spike in crude was immediate as traders feared that it was potentially a terrorist act.  Yet it was later reported it was a diesel pipeline owned by a contractor working for Saudi government, it was not an oil pipeline to state owned Saudi Aramco. So while the markets eased off the highs when it became clear that it was not a terrorist act there were other factors that allowed crude to find some support. Later a report that armed Gunmen seized Libya's major El Sharara oilfield, shutting down production raised concerns again about the reliability of Libyan oil exports. One of the major factors in oil prices epic fall was the return of Libyan light oil that helped create the oversupply situation in Europe. If the market senses that Libyan exports become at risk then it will stabilize and rebound. We also saw the impact of falling prices with an uptick in demand in the Energy Information Administration (EIA) report. The EIA reported that commercial crude oil inventories increased by only 500,000 barrels from the previous week, much less that the 2.5 million barrels expected. U.S. refineries ran at a higher than expected rate, 88.4%, as they increased production of both gasoline and distillates to meet strong demand. Still supply of gasoline fell by 1.4 million barrels and supply is below the average range. Distillate fuel inventories also fell by 700,000 barrels, which are below average as well. The stronger demand and tighter supply of product coupled with Libyan problems gave us a bottom. Plus with the market being oversold the stochastic setup led to short covering. Today oil will take its cue from the dollar. The dollar will move on the European Central Bank (ECB) Statement that is due. With Japan going quantitative easing crazy, can the European central bank keep pace? With reports that ECB head Mario Draghi is wearing on some nerves it is unlikely that he can repeat some of his previous magic to jawbone the market... The dollar should offer a counter balance to the more recent bullish oil developments The other thing to watch is natural gas. Today the EIA will offer its assessment on supply. We are looking for a 78bcf injection leaving supply still about 8% below average. The market has put in an impressive rally already based off of nuclear power plant maintenance and a chilly winter forecast. While the long term outlook is bullish we are overbought, so beware of a pullback after the report. We know that the boom in the U.S. energy sector has been a plus but what states have benefited most? The EIA says that Texas added more than 19,000 new private sector jobs in oil and natural gas production in 2013, almost six times the number added in New Mexico, the next highest state for oil and natural gas production jobs added last year. The extraction, drilling, and support jobs categories are a measure of on-the-ground production jobs, and do not reflect the many jobs at oil and natural gas corporate headquarters based in Texas. In the past decade, growth of jobs in oil and natural gas extraction, drilling, and support activities has outpaced the national average of private sector job gains. Overall, oil and natural gas production jobs in the United States increased from 292,846 annual jobs in 2003 to 476,356 in 2008, a 63% increase. Following the net loss of 54,323 oil and natural gas production jobs during the 2008-09 recession and relatively little national job growth, jobs in oil and natural gas production increased another 28% from 2009 to 2013, from 422,033 to 586,884. Additionally, average wages of oil and natural gas production jobs were $108,000 in 2013, more than twice the average wage for all private sector industries. Since 2009, average wages from oil and natural gas production jobs have increased by 12%, compared with a 10% increase for all private sector industries. Most of the job growth has occurred in Texas, along with significant contributions from Oklahoma, New Mexico, and North Dakota. These jobs are part of the larger mining sector, which includes the extraction of coal and metals as well as oil and natural gas extraction. Many of the states that exhibit strong growth in oil and natural gas employment also show growth in mining activity and economic activity (measured as gross state product). In 2013, Texas, Oklahoma, and North Dakota were among the top states for growth in gross state product and in the mining sector.