Come on admit it you cynical oil traders out there, admit that you owe the American Petroleum Institute an apology! Admit you snickered last week when the API reported that crude supplies rose by 6.5 million barrels. You said it was outlandish! You thought that the API was out of their minds or just plain crazy. We'll maybe the API isn't that crazy after all. Not all of them anyway.
The oil market once again defies the supply side of the market even as the Energy Information Agency arm of the Department of Energy reported that U.S. commercial crude oil inventories rose by a much more than expected 3.9 million barrels in the latest reporting week. Yet that was a much different weekly move from the American Petroleum Institute that reported that oil supply actually fell by just about one million barrels. I got tons of emails wanting to know why the week to week changes were so different. Why does it seem like the API is on one planet and the DOE on another. Why can't these two reports just get along?
Well maybe if you look a little harder these two reports may have more in common that you might actually think. Last week traders scoffed (come on, you know you did) when the API reported that crude supplies rose by a whopping 6,509 million barrels bringing supply to 371,247 million barrels. The DOE showed on the other hand a more reasonable palatable increase of 5.67 million barrels a number that buffered the market reaction in part because of the earlier API release. Still according the DOE that would have put supply at 366,743 million barrels. Most people just assumed that the DOE was right and that was the end of the story.
Yet amazingly enough just a week later the DOE is showing crude supply on a build an almost 4 million barrel build to come in at 370.6 million barrels. This build in supplies came as the DOE reported that refinery runs leapt to 83.4 percent of their operable capacity. Runs up and crude supply up??? Hmmm. Yet the API reported that while runs increased crude supply fell by over a million barrels bringing total supply down to 370,239. Just a statistical aberration away from the DOE's total of 370,600. In other words this week the DOE had to play catch up with the crazy API number meaning the API probably had it right all along.
Still the oil shook off the bearish increase in supply reluctantly as the stock market rallied and the dollar retreated. The supply of crude and increased refinery runs put pressure on both the RBOB gasoline futures and the diesel proxy heating oil. The DOE reported that motor gasoline inventories increased by 0.8 million barrels and are above the upper boundary of the average range for this time of year. The DOE said that finished gasoline inventories fell last week while gasoline blending components inventories increased. Distillate fuel inventories increased by 2.7 million barrels and are also way above the average range. Over all commercial petroleum inventories a whopping by 11.3 million barrels last week meaning we have plenty of everything when it comes to petroleum.
Yet natural gas may take a hit as GM reports it is taking the summer off.GM might halt production at some of its U.S. factories for up to nine weeks this summer to combat slumping auto sales and try to reduce inventory. Plant shutdown stories like these are very bearish for natural gas. The GM plans are not necessarily a surprise but is another nail in the coffin of the dying natural gas demand outlook.
Oil is looking strong on a strong stock-market and better news out of Europe. Bearish traders warning! Do not get caught up in the notion that the market has to go down because of 20 year high supply and 10 year low on demand. Don't get stubborn because the IMF is dreary. Listen to what the market is telling you. If it can't break there is a reason. The stocks have to fall if oil is going to make a substantial move down! Hey do IPOD's use oil? Oil is focused on the financials. It does not matter if it drives up stocks. Or if the Euro zone PMI hits a six month high and the dollar falls oil will move as it did this am.
The New York times today is reporting how oil prices have resisted the world's recession trend. This NYT article talks about oil being used as a refuge against a slumping dollar and rising inflation. The NYT is reporting what I have been saying all year and that is oil is being used as a financial instrument in the throes of this financial crises. This is why oil rallied out of the historical norm when it spiked to $147.00 per barrell and the reason it is not breaking down to $25.00 per barrel. The Times for got to talk about the affect of quantitative easing on the resilient price of oil but they will eventually get around to it. Forget supply and demand for the moment! It doesn't matter until it matters. And that will not matter for awhile.
Buy June crude oil at 4580 - stop 4430.
Buy June heating oil at 12500 - stop 11900.
Buy June RBOB at 12900 - stop 12700.
We're short June natural gas from apprx 390 - lower stop to 378!