Tuesday, March 1, 2016

Based On Supply, Oil Is Trading Much Higher Than One Would Expect

If you gave me the current supply/demand and storage positions and asked me to solve for price I'd come back with an answer somewhere in the $25-$30 range i.e. some 12% to 26% lower than the current $34.00, down 40 cents on Globex.

The fact that WTI is trading that much higher suggests something else is going on and frankly we aren't sure what it is and what has kept the futures coming back to the $34-$34+ handle we first posted about January 27.
Today the futures traded as high as $34.76 but once again didn't clear the Jan. 28 spike high of $34.82 which is another conundrum: why is it stalling under $35.

Possibly (probably?) related, last Thursday I sent this response to a friend regarding an email he had sent me:
Subject: Re: Deutsche Bank Chief Quant: "Our model ... more accurate than the arbitrage funds"

...And then there are exogenous events where one might actually have some expertise and you get your butt kicked anyway.
The oil vol. index has come down dramatically but it is still over 60.
And although we're flat in gold I have no explanation for the almost 20% up move.
I'll point out though, that the 1990 run began in June of that year, seven or so weeks before Saddam went into Kuwait:
On the long term charts that pop is just a blip and no one sees it but at the time it was a big deal and had folks spouting off all kinds of rationalizations.
None correct.
Compare/contrast the recent big dipper:

What I'm saying, in a much more oblique manner than usual is: We might be seeing a possibility-of-war premium priced into both oil and gold.

If that is the case it is probably worth noting that the Saudi's Northern Thunder military maneuvers have been extended from a targeted completion date of March 4 to March 10.

From ZeroHedge:
Following last week's builds overall and at Cushing, and Genscape's Cushing build warnings, expectations were for a 3.3m build overall (and 700k build at Cushing). API reported a massive 9.9mm build - the largest since April 2015; and a yuuge build at Cushing of 1.8mm (most in 3 months). Gasoline saw a draw but Distilates a notable build. Following today's v-shaped recovery in WTI, and NYMEX close ramp, the API data has sent crude reeling.
  • Crude +9.9mm (+3.3mm exp)
  • Cushing +1.8mm (+700k exp)
  • Gasoline -2.2mm (-1.1mm exp)
  • Distillates +2.7


Here's today's 30-minute chart showing the day's high and the reaction to the API numbers: