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Monday, March 12, 2012

Top Calling the Oil Market

On Thurs., March 1, I stuck my neck out and said oil has to go lower. Unlike every parrot on the internet, I use actual data points when making my outlandish predictions. I used to play in the options sandbox and while I am no professional trader- I can hold my own.

There is absolutely nothing to support current price levels. Nada. Not consumption. Not fake recoveries. Not even rumors of war from Iran or us. It is complete bullshit. That these price gouging levels have been maintained for the last 12 days...defies belief. Gasoline demand has fallen off a cliff- the greatest decline in 21 years...a clip from the Wall Street Journal.

The weekly report from the U.S. Energy Information Administration showed declines in demand for gasoline and distillate, a category that includes heating oil and diesel fuel. The data suggested that high prices are only adding to a long-term trend of declining domestic fuel consumption.

EIA data showed four-week gasoline demand fell 7.8% from a year earlier, the biggest ever year-over-year decline since records began in 1991.

Still, crude oil inventories rose by a modest 800,000 barrels, a relief for some traders after the American Petroleum Institute, an industry group, said late Tuesday that stockpiles rose by 4.6 million barrels last week.

Tony Rosado, a broker with GA Global Markets, cautioned that weak demand and rising stockpiles should keep a lid on prices.

"We seem to be well-supplied," he said.

This week, come Wednesday, I expect to see another big build in inventories while storage capacity has become a big concern. Where are they storing these 5.5 million barrel inventory builds and how much are they sending overseas? The Baltic Dry Index, the ships and shipping, has fallen 53% during this past year. The BDI is bouncing off multi year lows. The BDI like everything un manipulated- does not seem to be supportive of the recovery meme echoed by anyone seeking re-election or their mainstream minions.

What we are witnessing now is a commodity priced with a reserve currency that is quickly becoming non-relevant. The world realizes that the dollar no longer has the implied strength it once had for a variety of DEBTZILLA related reasons. Oil is being priced according to the value the world is attaching to the counterfeited dollar. That is really the only explanation I can think of for an oil market that has truly left the rails. In a normal functioning, non stagflation scenario with anybody but Bernanke at the controls, oil would be priced well below 70 bucks a barrel. 

On a personal note, I parked my Ford F 250 two months ago. I have traveled 3000 miles since then in my new Elantra. Those three thousand miles would have cost about 280 gals. of gas @ 3.25 gal. or about 900 bucks. In the Elantra, it has cost me 85 gals. of gas or about 275 bucks. I have saved 625 dollars. After the car payment, I still net a savings of 75 dollars a month.

Oil demand should continue to fall- it will be interesting to see if oil prices can continue to go the opposite direction.

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