Market Report: Offline Gulf Production Impacts API Report

Tropical Storm Ida may have had more of an impact on the weekly American Petroleum Institute report than she will in the big energy picture. A larger drop in Gulf Coast imports led to a drop in crude oil supply and is giving people a reason other than the dollar to buy oil. The API reported that US crude supply fell 4.4 million barrels in the latest week helping to drive oil higher yet again overnight. Oh sure you have that pesky little dollar falling again as well, but it's still off the recent lows.

Of course while the drop in crude supply can be easily explained away by the Gulf storm, but the rest of the numbers do not so easily add up. The API reported that gas supply fell by 96,300 barrels and distillates increased by 507,000 barrels. The rest of the country, according to the API, showed that crude imports actually increased yet the drop in the Gulf Coast seemed to offset this.

Yesterday it seemed that heating oil was giving us a boost and leading energy higher. Part of it is that the weather is supposed to get a bit colder but also because of the possibility of a late harvest in the grains. Bloomberg News reported that Goldman Sachs Group Inc. said it expects U.S. demand for diesel to increase in coming weeks, reducing surplus supplies of the fuel as farmers return to harvest crops as weather conditions improve. The late harvest season is estimated to generate an additional demand of 11 million barrels of distillates at the national level according to the report and it gave heating oil buyers another reason to buy heating oil other than the dollar.

Yet again it is the dollar that is driving us higher. The market should see some impact from the Energy Information Agency report that I would expect is like the API report -- affected by Tropical Storm Ida. Oil still has a glut of supply which should limit upside gains but other than that it seems like the carry trade will continue to carry on. Precious metals and not so precious metals are surging and even grains are being buoyed on the dollar. Everyone is talking about the dollar, but it seems that no one is willing to really do anything about it.