Baerrus Magnus
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Baerrus Magnus in Options Trader; hang out at,

IEA report points to lower crude prices

Supply/demand situation is pointing toward lower Oil prices. That is pretty clear. The US Oil producers will keep on pumping until they work through their hedges as they still can sell at prices like $70 - $90. Those prices locked in H2 of 2014 via futures or other derivative contracts. Once, those hedges come off. We should see a meaningful slowdown in production.

In the interim, storage capacity is inelastic constraint which can break WTI price. The break could be quite abrupt. Because small changes at the margin, do produce large consequences. I am not touching Oil Exploration companies until that event occurs and washes out their stock prices.

Here is an except from today's EIA report:

The shocking glut of oil keeps building, up a very steep 9.6 million barrels in the March 13 week to yet another 80-year high of 458.8 million barrels. This is the 10th straight build for oil -- and all of them large.

The build does not reflect easing demand from refineries which increased production in the week for both gasoline and distillates. Despite the increase, gasoline inventories fell 4.5 million barrels but remain well above their average upper limit. Distillate inventories fell 0.4 million barrels.

A look at the wholesale sector also shows heavy conditions with gasoline supplies up 2.7 percent year-on-year, which is heavy for this reading, and distillates up 5.6 percent. WTI oil is down about 25 cents following the data, near $42.25.