A lot of the focus in oil prices today will be on China’s stonking third quarter GDP growth of 8.9 per cent. But JBC Energy makes an interesting point about how the US inventories data over the past two weeks appears to have been (mis)interpreted: numbers out of the EIA, they write, have effectively boosted crude prices by some $6.
Commercial crude oil stocks added 1.31m barrels in this week’s estimate – fewer than expected – and in last week’s report they rose by a mere 0.33m.
Gasoline and distillate stocks, meanwhile, fell by 0.8m and 2.2m barrels, respectively, in this week’s report. There has been a lot of concern in recent months about the build in products – but is this draw really a bullish signal for crude prices?Not necessarily, JBC writes (emphasis theirs):
Wow! What the data really tells us is that US refiners are desperately cutting refinery runs due to bleak margins, leaving 19% or 3.4 million b/d of their capacity unused. Naturally this is resulting in lower crude purchases and crude stocks need to come down in line with lower demand.
Forward demand cover for distillates is still 58% up from the 5-year average and the crude cushion is at a healthy 27 million barrels, while the rest of the world is struggling with massive floating storages and OPEC spare capacity amounts to 6 million b/d.
Against this background it is astonishing how two EIA data sets are able to boost prices for every barrel consumed around the world by $6 (and most of this increase took place immediately after the data release).
Of course there have been other things going on in the past few weeks – the usual fundamentals debate is going on and now-familiar themes of the declining dollar and optimism about the macroeconomic outlook. But JBC suggests that this is all resulting in a somewhat confused reaction:
In a way it appears that Joe the plumber is (indirectly) buying oil futures on fears that gas pumps will run dry or on good Q3 corporate results and somewhat brightening economic prospects. In actual fact, gasoline is the only relatively tight product from a fundamental perspective, but this is accurately reflected in the fact that RBOB futures rose by 3.2% versus the 2.8% increase at WTI. The upside of gasoline is also clearly capped by the fact that refiners around the globe are eagerly waiting to send a few more cargoes to the US to make at least some money with benchmark margins being practically zero or worse.
With oil hovering around $80 a barrel, JBC says that regulators may redouble their efforts on speculation. Whether this happens or not remains to be seen – as the FT has written in the past couple of days, the regulator is actually looking more dovishly at speculation now, with the ‘swing voter’ on the CFTC board, Michael Dunn, expressing concern that strong position limits on commodities futures markets could lead to regulation arbitrage.