Economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.
Crude oil inventories in the U.S. have fallen 23.9 million barrels since the end of April, but, as Bloomberg notes, oil bulls counting on further declines are fighting history. Over the past five years refiners' crude demand has fallen an average of 1.2 million barrels a day from the peak in July to the low in October... "The rough part will be once refineries start going into maintenance,... we aren’t drawing down inventories very fast and the pressure on prices will increase."
Gasoline stocks held independently in the Amsterdam-Rotterdam-Antwerp (ARA) hub rose more than 12% to an all-time high in the week to Thursday. This comes at an awkward time for the industry: just as Chinese gasoline exports soared by 75% in one month, prompting concerns about the future of the price of oil.
"this aggressive “bidding” is sufficient to cause us to abandon our modest, one unit long positions in crude immediately upon receipt of this commentary. Being wrong is part of the business we are in; remaining wrong is anathema and the market is about to tell us that we are very, very wrong."
As China's deflationary refined product finally hits the world, and leads to a flood of gasoline and diesel across the continents, a curious development is the build up of gasoline tankers in New York City's own harbor...
What follows is how JPM manipulated the silver markets by selling the Silver contango during illiquid hours, then used their deep pockets to push settlements, then waited until margin calls made the large locals puke their positions. JPM in effect stretched the relationship between forward rates and futures spreads until they made no sense anymore. Not unlike a company trading at 50x earnings. It cannot last long. But it only has to last long enough until the guy with the position opposite you has to liquidate.
Last Friday we first reported on two surprising developments: one was a record accumulation of crude tankers just off the coast of Singapore in the Straits of Malacca, awaiting higher oil prices to offload their precious cargo; the second was that as a result of previously profitable contango trades now flattening and making storage no longer profitable, oil shippers are now forced to ask for bank loans to fund offshore storage costs. Over the weekend none other than Morgan Stanley noticed precisely these two developments.
One particular energy trader - a name well-known to Zero Hedge readers - Glencore, has built up a massive inventory stake in the Brent market where it now holds an unprecedented 30% position in Brent, which it is holding for offshore storage in its tankers in hopes of pushing the price of Brent, and thus the entire energy complex higher, by limiting supply.
“Close your eyes and buy” seems to be the mantra for now. While fundamentals don’t justify a cyclical recovery in oil yet, the market continues to move higher. The primary driving force has been macro funds, index money and CTAs. Technicals and momentum have only added to it, and there is a sense from some of investors that they need to buy for fear of missing out. Similar to 2015, we see a confirmation bias where any bullish data point is embraced outages, weekly US production, etc) and bearish data points are dismissed or spun as a buying opportunity.
This is what Pioneer Natural Resources just said in its press release: "expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive."