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Stress Relief
The Department of Energy reported that US crude oil inventories rose by 600,000 barrels last week bringing the nation's supply to a whopping 375.3 million barrels. That is 17.7% more oil than we had on hand a year ago and just absolutely blows away the five year average. On top of that, according to David Bird at Dow Jones, US commercial crude stocks are at 10 year high. US company held inventories increased nearly 8 million barrels the highest level since October 2006 and the most for this week in EIA records dating back to 1990. Over all US crude oil and distillate inventories are the highest at the end of April since 1981. Based on current demand, stocks of oil are sufficient to cover 60.3 days of demand. And demand was nothing to write home about. Crude demand slumped on the four week average to the lowest level since May of 1999. Compared with unadjusted 4 week data reported a year ago for the week ended May 2, '08, is down 11.6%, or 2.399 million barrels per day which is the biggest year-on-year drop since the time the DOE kept those records dating back to 1990. The DOE says that over the last four weeks, motor gasoline demand has averaged 9.0 million barrels per day, down by 0.9 percent from the same period last year. Distillate fuel demand has averaged 3.5 million barrels per day over the last four weeks, down by a monstrous 14.1 percent from the same period last year. Jet fuel demand is 11.6 percent lower. Gas stocks fell by 167,000 barrel to 212.445 million barrels to the lowest level since May first. Dow Jones says that gasoline demand fell 2.5% last week to 8.923 million barrels the lowest since Feb 13. Current stocks are sufficient to cover 23.8 days of demand at the current rate, the most for this week since 2002. The level of cover is one day higher than a year ago and more than the 5 year average for this week of 22.5 days. Yet despite the litany of reports of gigantic supply and anemic demand this market continues drive higher. If the energy complex was only focused on supply and demand this market might be substantially lower yet there is something different and historic going on that transcends the normal measures of what these markets look at. We have events coming together that can drive energy prices higher in spite of the plush supplies that we have. We have a market that is fixated on the prospects of a much faster than expected global economic recovery in the back drop of long term inflationary policies from the world's central banks. We see the markets starting to respond to the historic shots of economic stimulation at a time when global production is falling. We are seeing situations that we have never seen before such as OPEC actually following through and complying on production cuts. Sure it might be because demand is so bad anyway. Even as Saudi Arabia says that their production won't exceed 8 million barrels a day, Saudi Aramco says - as reported by Bloomberg News - that they will reach 12 million barrels a day of oil capacity in "just a few weeks," once the Khurais project is completed. The state-run company will continue to invest in oil and gas exploration to avoid, "another vicious circle of price spikes," al-Falih said in a speech in Washington. So more capacity in OPEC should be bearish but for now it is not. You can call it an enigma you can call it a conundrum but you cannot stand in front of it. Look at the markets mood. It is not about the banks that have to raise money it is about those who don't. It is not about all the jobs that have been lost, it's about those that still have them. It is not about current supply and demand it is about the prospects of demand and inflation in the future! The market is talking, are you listening? We have geo-political worries as well. Things are heating up in Pakistan as fighting between the Taliban and the Pakistani military is raising concerns. The Iran nuclear saga drags on and as Bloomberg News reports, armed attacks on international oil assets in Nigeria's southern Niger Delta rose 48 percent in the first four months of 2009 from the same period in the previous year, according to Bergen Risk Solutions, a security and political risk adviser. There were 34 attacks between January and April compared with 23 in the previous year, the Fantoft, Norway-based Company said in an e-mailed report today. The attacks include nine kidnappings of expatriates, an increase from one in the previous year, armed assaults and pipeline bombings. Obama is planning to hire for 800 new federal tax agents and that is just to keep an eye on his cabinet and to investigate his Supreme Court short list! More news than we can fit in! Make sure you are getting the Latest News from the Fox Business Network where you can see me every day! Also make sure you are getting my daily email blast! Just call me at 800-935-6487 or email me at pflynn@alaron.com to open your account!
Most recently, Phil and his energy team were one of the first to predict that global crude oil prices would exceed $30/barrel in the year 2000, a correctly-predicted market milestone which has highlighted the economic scene in the new millennium. Through hundreds of media interviews, Phil Flynn and Alaron Trading have become familiar names in living rooms and boardrooms worldwide. The world's print, broadcast and online media have come to rely on Phil's accurate and animated forecasts and analysis. |
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Oil bears are stressed out as oil soars on a heavy dose of economic optimism and a double dose of short covering. A much better than expected jobs loss number from ADP and a smaller draw in crude supply than expected and considerably less stress about the banks stress test results send energy prices on a bullish journey that once again seems to defy the traditional measures of price as reflected by supply versus demand. Despite the fact that the Department of Energy weekly supply report missed the streets more dismal expectations, was it really so bullish that it should inspire such a dramatic rally? I mean just think about all the oil and product we have on hand.
Phil Flynn is Vice President, Energy Analyst and General Market Analyst with Alaron Trading Corporation (www.alaron.com). Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.