Good News/Bad Action: Prior to yesterday, NYMEX June crude oil had closed higher in 12 of 16 sessions since April 21st, gaining 21?% in the process. This rally was based more on technical momentum rather than on fundamentals. As such, higher prices had become the justification for even higher prices rather than the fact that crude oil supplies in the U.S. (commercial + SPR) had risen to 9 straight all-time highs.
Yesterday the DOE reported the first weekly decline since February 27th and only the third decline this year. More importantly, gasoline supplies plunged as refineries reined in production. The report was the first, in a long time, that could be reasonably construed bullishly. In other words, the bulls had more than enough ammo for a run at $60 WTI on the NYMEX.
In this regard, the bulls failed miserably.
Our friend Mark Fisher would probably dub yesterday’s action as good news, bad action. The bulls received good news, i.e. large, counter-seasonal draws in oil and gasoline, a plunge in imports and a drop-off in production… etc. Given WTI’s rapid ascent of the last three weeks, it would not have been unreasonable to expect yesterday’s report to perpetuate the bullish trend. Instead, the market faded a dime short of $60, trended lower through lunch and tanked in the final hour of trading… that’s bad action… and it is a potential telltale that the current run in oil is running out of gas, as it were.
As we noted on Monday, we debated another guest who claimed (with a straight face) that $300 crude oil was possible within the next 12 months. $300! Last year when average U.S. retail gasoline was topping out just over $4 a gallon, NYMEX WTI was trading in the $130/$140s.
The EIA estimates that crude oil prices accounted for 75 percent of the price of retail gasoline then (as opposed to 55 percent today). If we assume that 75 percent figure and factor in refining, distribution and marketing costs, then what this guest on Kudlow was really proposing was that U.S. consumers could be paying $9.50 at the pump next summer.
When someone has the kazatzkes to go on national television and make such an idiotic claim, then you have to figure the end is near.
Stephen Schork is the Editor of, "The Schork Report" and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.