In a real commodities’ bull market, i.e. a market defined by strong demand relative to supply, the front of the curve typically flattens and eventually moves to backwardation. That is not what we have been seeing over the last week. That suggests some force other than near-term fundamentals are driving the current “strength” in New York.
You don’t say? Gee, here at The Schork Reportwe wonder what Boone et al are up to these days?
DOE Review: All told, it was a very bearish report. Be that as it may, as of Monday spot May NYMEX crude oil had surged 10 percent since the report’s release. On the other hand, the contango (the premium afforded the deferred contracts) increased. For instance, the ratio on the 1st/2nd month time spread (May’09/June’09) weakened (i.e. steepened) from 0.971 to 0.965 or from minus $1.45 a barrel to minus $1.93. That is a sign of weakness.
According to the latest estimates from the Federal Highway Administration (FHWA), in January Americans drove 7 billion fewer vehicle-miles traveled (VMT), or 3.1 percent less, compared to the same month a year earlier. That is the first back-to-back decline for January since 1981-1982. That is of course significant in that the 1981-1982 recession is the benchmark that the current recession is most often gauged against.
Be that as it may, it is clear, Americans are driving less… and that is a bearish thing. Case in point, the NYMEX 321 crack spread for June has since collapsed. After showing some signs of life back at the start of this month, the ratio of NYMEX products to crude oil has dropped from 1.196 to 1.157. In other words, the premium on refinery outputs relative to inputs is dropping. With domestic crude oil stocks at record levels in the weakest market in 27 years, we here at The Schork Report are looking at why (how) is this happening?
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.