Crude oil shorts are shocked as oil prices keep rallying. Massive capital spending cuts in the energy space as well as a refinery strike is giving oil and oil products a boost. While many continue to say that the fundamentals don’t justify the rally, the truth is these are the same folks who were shocked when oil went so low in the first place. The perception of what is a fair price for oil changes quickly as a futures market looks ahead from what is to what will probably be.

Oil products led the way as the first major refinery strike since the 1980’s caused market concerns. The strike by United Steel Workers union impacted about 10% of U.S. refining capacity. Even as many argued that output so far at the refineries not been impacted, wholesalers and jobbers bid up spot prices just in case. 

Genscape, the respected company that monitors energy industry and refining activity, reported yesterday that in the second day of strike by the United Steel Workers union at seven U.S. refineries and two other petrochemical and co-generation facilities has had little effect on operations. Genscape admitted that the strike pushed refined products prices higher today from concerns that production may be impacted. Genscape, which monitors approximately 58% of the refining capacity where strikes are taking place, said so far, no operational changes have been observed.

Even so, oil products continue to rally as many are not certain if the refineries over the long run can maintain output. Some refineries are going to shut down for maintenance early as the strike is giving them the excuse they need. The other concern is that the strike may spread to other refineries and other industries as well. The strike is entering its third day with no end in sight.

We called a bottom at $44 on oil and it looks like it will hold up. With the technical looking strong and wounded shorts we still have the capacity to surprise on the upside. While the front end of the curve seems well supplied the demand to buy oil to put into storage has offered some support. With storage filling rapidly that could weigh on prices later but for now you can’t get in the way.

The International Energy Agency last week warned that supply would tighten later this year and we could see a 350,000 barrel drop in non-OPEC supply. That is a number that could grow if the rig and capital spending cuts keep coming, not to mention more shale bankruptcy possibilities.  

 

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world’s leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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