Is Nymex WTI a sell? With nary an economic headline to focus on, the equity markets rallied on Monday with crude oil bulls benefiting in the process. The contract for September delivery rallied 1% to kick off the new week at $81.48. That translates into, roughly, $2.95 at the pump for a gallon of gasoline.
As pointed out in yesterday’s issue of The Schork Report , we are skeptical this economy (and by “economy” we mean what is near-and-dear to us all, jobs and home values… and most definitely not the stock market) is capable of sustaining oil prices at these levels.
However, as we saw last Friday with the latest release of data from the CFTC, investors piling money into managed money accounts (USO et al.) have an opposite view. Since the 04th of July holiday in the U.S., these accounts have boosted their holdings in Nymex oil futures by 143% to a three month high, 133,664 contracts or roughly three times the amount of storage capacity at the Nymex delivery hub in Cushing, Oklahoma.
The bullish view on oil over the last month was likely predicated on the start of the driving season and then exacerbated by expected shortfalls in supply related to disruptions of imports to Gulf Coast refineries as result of TS Bonnie.
Of course, Bonnie was nothing but some wind and rain and we have therefore not seen anything close to a drawdown in stocks. To wit, over the last four weekly DOE reports crude oil stocks have fallen by a barely perceptible 0.05%, as opposed to the 1.7% ±0.8% average decline over the last ten Julys. As such, crude oil stocks in the U.S. are on pace to end the month of July at the highest level, ?358 MMbbls, since 1990.
In other words, crude oil supplies are comfortable or in terms of supply and demand, bearish… after all, we are now closer to the end of the driving season rather than the start. In the meantime, if we regress the rise in Nymex WTI values against the surge in net length held by managed money accounts, then the result is even more ominous for bulls. Suffice it to say, prices are not getting the pop we would have expected given the spike in length.
On top of this, now comes news, as reported in yesterday's NY Times, that China’s Ministry of Industry and Information Technology will shutter 2,087 steel mills, cement plants and other “energy-intensive” works by September 30th in an effort to improve energy efficiency.
Good for China, good for the globe… good for oil bears?
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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.