Oil Hits Two-Week High on Dollar-Fueled Rally – Yemen:Shipping Chokepoint

Oil storage in tanks on the edge of town in Cushing, Okla.

 

Trader cites added impact of Middle Eastern conflicts on pricing
Updated March 25, 2015 4:06 p.m. ET

Oil prices surged to their longest winning-streak in more than a month as the weakening dollar continues to fire up a rally despite a historic glut of oil.

U.S. oil pushed to the verge of $50 a barrel for the first time since March 9. Four straight sessions of gains matched a winning streak from late January and early February. The market hasn’t had a five-session winning streak since June, when Islamic State militants were threatening the Iraqi capital.

Middle Eastern conflicts could have played a role Wednesday as news spread of Saudi Arabia building up forces near Yemen, said trader Tariq Zahir. But the dollar was likely the main factor behind the rally, Mr. Zahir and others said.

Oil has been rallying for most of the past week, since the Federal Reserve ratcheted back expectations for a rate increase. That news started the dollar’s retreat from a historic high, which has since fueled an inverse price move in oil.

Oil prices moved in tandem with the dollar, especially in the past four months, analysts said. Dollar-priced commodities like oil become more affordable for holders of other currencies as the dollar depreciates.

Some traders have been buying on expectation of the tandem move. Others have been buying oil simply because they are looking for other trades now that the dollar’s long rally may be over, traders and brokers said.

“It’s the hope of U.S. dollar going down and production going down in the U.S.—without [the traders] fully thinking about it,” said Mr. Zahir, who is bearish on oil prices.

Light, sweet crude for May delivery settled up $1.70, or 3.6%, to $49.21 a barrel on the New York Mercantile Exchange. That is its highest settlement since March 9.

Brent, the global benchmark, gained $1.37, or 2.5%, to $56.48 a barrel on ICE Futures Europe, its highest settlement since March 12.

It could be a panic move and a mistake, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc., comparing the rise to the last winning streak when traders bought into oil as rig counts started to fall precipitously. With rigs out of work, hopes grew that production would soon decline. Instead, production has kept growing.

“They think they have this newfound gem of an information point, and then they realize” the fundamentals rule, Mr. Yawger said.

 

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The market briefly lost ground on news that U.S. producers added to a historic glut, but rebounded within about 90 minutes and kept rallying for the rest of the afternoon.

U.S. oil inventories rose by 8.2 million barrels in the week ended March 20 to 466.7 million barrels, the U.S. Energy Information Administration said, outdoing a 5.6-million-barrel increase expected in a Wall Street Journal survey of traders and analysts.

Stockpiles are at a high in weekly data going back to 1982. In monthly data, which don’t exactly line up with weekly data, inventories haven’t been this high since 1930.

Stockpiles in Cushing, Okla., a key storage hub and the delivery point for the Nymex contract, rose by 1.9 million barrels to 56.3 million barrels, adding to its highest level on record in data going back to April 2004. The EIA said in September that Cushing’s working storage capacity was 70.8 million barrels.
Domestic crude production also slightly edged out the weekly record it set last week of 9.4 million barrels.

“Bottom line, we’re filling up those stockpiles and as long as refinery operations are subdued, we’re going to see these” additions, said Mark Waggoner, president of brokerage Excel Futures. “This is about the time we ought to sell.”

Gasoline stockpiles fell by 2 million barrels, more than the 1.7 million-barrel drop expected by analysts surveyed by the Journal.

Front-month gasoline futures settled up 2% at $1.8365 a gallon.

Distillate stocks, including heating oil and diesel fuel, fell by 34,000 barrels, less than the 500,000-barrel drop that analysts had expected.

Diesel futures settled up 1.3% at $1.7283 a gallon.

Bloomberg) — While Yemen contributes less than 0.2 percent of global oil output, its location puts it near the center of world energy trade.

The nation shares a border with Saudi Arabia, the world’s biggest crude exporter, and sits on one side of a shipping chokepoint used by crude tankers heading West from the Persian Gulf. Global oil prices jumped more than 5 percent on Thursday after regional powers began bombing rebel targets in the country that produced less than Denmark in 2013.

Yemen’s government has collapsed in the face of an offensive by rebels known as Houthis, prompting airstrikes led by Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries. The Gulf’s main Sunni Muslim power says the Houthis are tools of its Shiite rival Iran, another OPEC member, and has vowed to do what’s necessary to halt them.

“While thousands of barrels of oil from Yemen will not be noticed, millions from Saudi Arabia will matter,” said John Vautrain, who has more than 30 years’ experience in the energy industry and is the head of Vautrain & Co., a consultant in Singapore. “Saudi Arabia has been concerned about unrest spreading from Yemen.”

Yemen produced about 133,000 barrels a day of oil in 2013, making it the 39th biggest producer, according to the U.S. Energy Information Administration. Output peaked at more than 440,000 barrels a day in 2001, the Energy Department’s statistical arm said on its website.

Shipping Chokepoint

Brent, the benchmark grade for more than half the world’s crude, gained as much as $3.23, or 5.7 percent, to $59.71 a barrel in electronic trading on the London-based ICE Futures Europe exchange on Thursday. West Texas Intermediate futures, the U.S. marker, jumped 5.6 percent to $51.98 on the New York Mercantile Exchange.

“Yemen is not an oil producer of great significance but it is located geographically and politically in a very important part of the Middle East,” said Ric Spooner, a chief strategist at CMC Markets in Sydney.

 

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