Oh right, I know you heard from some people that oil rallied because of a bullish Department of Energy report yesterday. Now I would like to take the easy way out and say that the report was bullish and that is why oil and petroleum rallied but it wasn’t. Oil rallied despite what was a bearish report.
Now do not get me wrong. In a market that is oversold and enamored with a suddenly surging stock market,it was perfect because the problem was not the debate on whether it was a bearish report but the question was whether or not it was bearish enough. People latched onto the headline number in crude that showed that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.8 million. Yes,larger than expected. Yet in Cushing, Oklahoma crude supply rose and is back above that storage busting 30 million barrel mark for the second week in a row.
And the products were not bullish. The Energy Information Agency during the peak of the summer driving season showed that gasoline supplies increased by 1.5 million barrels last week and are in the upper half of the average range. That comes as demand faltered from a week ago and the four week average demand has fallen averaging a less than respectable 9.1 million barrels per day which is up a negligible 0.6 percent from the same period last year.
Distillate fuel demand, though the highest in weeks, came in at an average of about 3.3 million barrels but still down 11.7 percent from the same period last year. Jet fuel demand is 12.3 percent lower.
Of course forget about supply and demand in this oversold market. We needed even more bearish numbers to ignore the economic optimism that came back in a big way. Stocks had the biggest up day since May. Intel and the banks beat the street and the market felt like it knew that China’s GDP was something special.
But was it? China’s 7.9% growth beat some estimates but it was not the type of blowout number that really justifies a big turnaround. Oh sure, with their big jump in cash reserves they can keep spending money but if the global economy does not show stronger growth, maintaining that growth rate will be more difficult and of course having 2 trillion in dollars hanging around helps. Hey they could write a check to pay for Obama's health care plan!
The dollar and stocks are key for oil today. Oil was disappointed with the China GDP yet JP Morgan’s big profit increase may help. Forget supply and demand and watch the stocks. Long term though position for a washout in oil.
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We're short September crude from apprx 6200 - stop 6440.
Stopped on short August RBOB from apprx 16570 at apprx 16770.
We're short August heating oil from apprx 15800 - stop 16300.
Stopped on long August natural gas from apprx 330 at apprx333!
