ENERGY PRICES WERE STRONG ON THURSDAY… and what a difference 24 hours makes. On Wednesday we received a stark reminder from the DOE of how bad the fundamentals are, i.e. demand is weak and supplies are high and getting higher as a result.
But, that was sooo Wednesday.
Yesterday we saw that only 584,000 Americans filed for first time unemployment insurance claims… and apparently, that is a good thing?
Demand, not only for gasoline, but for other major products markets as well, is going the wrong way, i.e. from the top left to the bottom right on today’s chart in .
Thus, Big Oil is straining under the weight of poor margins.
So far this earnings season we have the following lowlights from the second quarter:
- Repsol… profit down 62 percent
- Shell… profit down 67 percent
- BP… profit down 53 percent
- ExxonMobil… profit down 66 percent
- ConocoPhillips… profit down 76 percent
- Petro-Canada… profit down 95 percent
It is now hard to reconcile these earning’s reports, demand was lousy in the second quarter (and it not any better today). Yet, this market was being fed a fantastic lie back then… the less bad is good mantra. Thus, whereas spot crude oil on the NYMEX finished the first quarter just below $50 a barrel (49.66) it finished the second quarter just below $70 (69.89). Crude oil rallied 40 percent as profits at the world’s largest oil companies were tumbling.
Why? Because this market wanted to ignore the obvious and lull itself to sleep with silly pseudo-intellectual catchphrases… green shoots, crocuses, mustard seeds and this season’s rookie of the year… the second derivative.
Thus, while we were led to believe that demand for oil was rising in the second quarter, hence the justification for that 40 percent surge on the NYMEX, we now have the balance sheets from Exxon, Shell et al. that prove it was a lie.
Look at the screenshot of headlines we pasted on the top of today’s issue of . Profits for Big Oil are down as demand is at generational lows. However, look at the very first headline, the NYMEX was higher yesterday because “… corporate earnings boost confidence…”
Huh? According to this one article, demand for oil and therefore profits for oil companies are down, but the NYMEX rallied yesterday because Motorola (mobile phone maker) had a smaller than projected loss and Calphalon (cookware) and Paper Mate (writing instruments) had better than expected profits.
Does that make sense? Of course it doesn’t. And, if you are bearish you better be concerned. On Wednesday it took a large, countertrend build in crude oil supplies to pull the market down $3.88 a barrel. One day later it took absolutely nothing to push it right back up.
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.