Be that as it may, for some reason the market thought a 1.6 MMbbl (million barrel) build in oil was bullish, but a 0.66 MMbbl build in gasoline was bearish.
Bottom line, as we analyze in today’s issue of The Schork Report, nothing changed last week. The report was bearish. Per yesterday’s numbers, transportation fuels (mogas, diesel, jet…) fell, but the draw was well below the norm, heating fuels rose and stocks of commercial and government crude oil surged.
On top of this, demand is virtually nonexistent.
Bearish fundamental signals do not get much clearer than steepening contangoes. Unfortunately, this market has a knack for ignoring fundamentals.
Instead, it possesses a rather perverse predilection towards exogenous shocks. Last year it was the falling dollar and the need to buy commodities as an inflation hedge.
Since last July, i.e. since crude oil peaked and the dollar bottomed, the concern has not been about inflation, but rather, deflation. So naturally, if the bulls cannot talk about inflation, they might as well talk about reflation… and of course the need to buy commodities… as a hedge. Heck, why talk about surplus supplies and weak demand when we can talk about all of this garbage about “second derivatives”, i.e. the lousy economic numbers that are paraded across the wires metronomically are indeed lousy, but they are less lousy than initially feared?
In this world, less bad is apparently good. Be that as it may, the Fed still maintains a dim view. Per the minutes from the Federal Open Market Committee’s March 17-18th meeting:
"Participants saw little chance of a pickup in inflation over the near term, as rising unemployment and falling capacity utilization were holding down wages and prices and inflation expectations appeared subdued. Several expressed concern that inflation was likely to persist below desired levels, with a few pointing to the risk of deflation. Even without a continuation of outright price declines, falling expectations of inflation would raise the real rate of interest and thus increase the burden of debt and further restrain the economy."
But, what does the Fed know? After all, the economy is still circling the bowl, but the velocity of the revolutions is slowing.
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.