A 13.2 million barrel oil supply build! Where is all that oil coming from? Oil prices and RBOB gasoline prices are rebounding after the Energy Information Administration (EIA) reported that there was a reclassification of oil supply because of a big sale from the Strategic Petroleum Reserve (SPR) and a jump in weekly gasoline demand that suggests that the death of gasoline demand may have been greatly exaggerated. There is also talk from some OPEC members that the deal to cut oil production may be extended and perhaps lead to even larger production cuts.

We knew it was coming or we should have known it was coming. A deal by President Obama with congress in the 1.1 trillion-dollar budget deal that lifted the 40-year ban on U.S. oil exports, included a provision to sell oil from the SPR to raise money to help pay for the budget and to fund green energy projects.  Those sales are happening now. The EIA reported that it sold over 6 million barrels of oil that was in the SPR back into commercial inventories and announced that an additional 10 million barrels of oil will be sold before the end of the month. So look for another big reclassification of supply out of the SPR salt caverns and into private hands. While that will significantly add to current supply because it was telegraphed earlier, it should be somewhat priced in.

Crude oil imports into the U.S. were up 1.082 million barrels a day as well. That added to the supply. The talk is that the increase in imports was due to tankers of oil from Saudi Arabia arrived that were shipped prior to the OPEC oil production cut. So it is unlikely that we will see that level of Saudi imports next week because of the Saudi cuts in oil production after the cuts. That surge in oil shipments was Saudi Arabia’s last hurrah before they put a knife to oil production.

Oil supply also jumped 1.143 million barrels in the Cushing, Oklahoma delivery point and 10.913 million barrels of the oil supply increase was on the Gulf Coast of the US. Oil may have double bottomed and we still feel oil is near the low for the year barring any major disasters. For the first time in three weeks US oil production increased but only 63.000 barrels per day  

Gasoline demand was crashing but many thought that the demand drop was overstated to seasonal variables and unusual conations. The drop in gas demand seemed to be at recessionary levels but we know that we are not in a recession. RBOB futures roared back as gas demand jumped by 631,000 barrels a day back to 8.941 million barrels a day. The jump in demand was sizable and expectations are that we will see upward revisions to past weak demand figures. The surprise 631,000 barrel drop in gasoline supply also fed the excitement, but snow may slow demand out East this week.

Winter is back with frigid cold in the Midwest! Snow storms on the East Coast! Natural gas is starting to look cheap. The EIA should show a 155 withdrawal from inventory today. If it is higher than that natural gas could spike.

Gold futures rallied for 5 days in a row as bond yields fell as Fed Chair Janet Yellen sounds a bit dovish!