Oil Gets Cheap As Global Supplies Exceed Implied Demand

It is absolutely amazing the spread between crude oil and Brent sea oil remains above $7.00 while the price of Brent oil touched its lowest point as far back as one can remember. Brent oil is trading at 100.71 with the possibility of edging below $100 today. Brent crude slumped to a 16-month low. The stronger US dollar weighs on the entire commodities sector but not as strongly as it has on energy. Better than expected US manufacturing data gave crude oil a bump in later trading on Tuesday after the commodity fell below the $93 price level. Crude oil is trading this morning at 93.21 up by 33 cents as the Asian session draws to a close. Traders took advantage of the dip in prices to buy up the cheap commodity.

Data on Tuesday was mixed as was its effect on oil prices. Strong US data was offset by weak Eurozone prints. Numbers from research firm Markit on Tuesday showed stronger-than-expected U.S. manufacturing in August, giving the dollar an added boost. Reports Monday showed weakening among the 18-country European Union’s top economies, increasing the probability of monetary stimulus.

In Germany, growth slowed to its weakest showing in 14 months. The PMI Index showed economic expansion, but slowdowns in new orders and a third straight decline in employment weighed on results. Companies trimmed their workforces and their ordering. The EU’s second largest economy, France, slipped further into a contraction. Its PMI tally sank to a 15-month low; new orders, output and employment fell. Manufacturing growth slowed to a 14-month low and much weaker than expected in the EU’s No. 3 economy, the U.K., but factories remained in expansion mode.

Crude also decreased as tensions between Ukraine and Russia have so far spared oil supplies. Russian Foreign Minister Sergei Lavrov said Ukraine’s allies are stoking the five-month conflict and should back peace talks.

As US drive season officially ended with the Monday Labor Day holiday and summer is officially over the demand for gasoline and residential demand for cooling is expected to decline until winter arrives. U.S. gasoline inventories dropped by 1.45 million barrels to 210.9 million during the week ended Aug. 29, the median estimate of eight analysts surveyed before the EIA report shows. Distillate supplies, which include heating oil and diesel, fell by 1.2 million to 121.6 million. October gasoline futures declined 7.99 cents, or 3.1 percent, to $2.543 a gallon, the lowest settlement since Nov. 7. The September contract expired on Aug. 29. Refineries schedule maintenance in September and October when units move from maximizing gasoline output to producing winter fuels.

The American Petroleum Institute is scheduled to release a separate stockpile report today. The API collects data on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm.