Things are just not that demanding. A lot of times in recent months we can get carried away in a sea of macro economic mania and lose focus on good old fashion supply and demand. And if you believe the report put out by the Energy Information Agency, demand just isn't that good. Oh sure there is always a macro economic back drop when you price a barrel. Yet for oil, for years it was noise in the background as opposed to the mellow-drama up front. When the economy was rocking and supplies were squeezed any headline or rumor or OPEC comment could lift the oil market in the blink of an eye. Or back in the nineties when supplies were plentiful, we would live and die by any slight change in inventory to try to catch whatever small move might be made in a world of maddening stability. Yesterday oil seemed to try to go back to its roots of reacting to supply of course the slightest strength in the US dollar probably helped to add some pressure. The builds across to board seem to suggest demand is bad and taking a turn for the worse and while all the numbers didn't seem to quite add up, the overall report tells a cautionary tale about the current strength of our economic recovery.
Let's start with the numbers, the EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.1 million barrels from the previous week. That put supply at 339.9 million barrels which is still well above the average range for this time of year. What was more shocking to some was the 4.0 million barrels increase in gasoline supplies which shows that drivers are cutting back as economic times are tough. The EIA says demand averaged 9.0 million barrels per day while up by 0.7 percent from the same period last year, we have to remember that last year at this time the economy was really starting to unravel. Gas prices were much lower a year ago but we do not see the type of demand bounce you would expect to see in a vibrant recovering economy.
Distillate fuel inventories also played into the weak demand scenario confirming the softening that we saw in this week's ISM manufacturing data. The EIA reported that distillates fell by 1.2 million barrels, and are above the upper boundary of the average range for this time of year. Overall distillate demand averaged 3.6 million barrels per day down by 7.7 percent from the same period last year. Product demand averaged 18.5 million barrels per day, down by 3.2 percent compared to the similar period. These numbers are plain out not as good as I would like to see to say confidently the economic recovery is gaining steam. In fact they say we may be going back in the other direction. Unless we see demand pick up quickly I would say these numbers indicate that the economy has hit a plateau and runs a real risk of contracting again.
For the price of oil at this point that may not mean too much. Oil is still locked into a range despite the fact that the daily charts are indicating a potential for a bearish trend but I do not think we are there yet. I think when oil gets near $75 it's a buy and when it gets near $80 it's more likely a sell. This is a traders market and entries and exits can change based upon the days activities so it is important to check with me if you are trying to follow my advice as the position trades will have a shorter shelf life than normal and global central bank moves can support or break the oil market at a moment's notice.
Of course oil can get some support on reports of economic recovery. This morning, Market-Economics reported that the euro-zone composite output index which is a gauge of private-sector activity including the manufacturing and services sectors hit a two-year high of 53.7 in November from 53.0 in October. This number gave us a little support in the am.
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Buy January crude at 7590 - stop 7470.
Buy January RBOB at 19750 - stop 19400.
Sell January heating oil at 21000 - stop 21200.
Stopped on long January natural gas from apprx 465 at apprx 460.