Try telling those 400 workers in Philly who have just been furloughed as a result of this idling, that demand for crude oil is strong.
Demand for crude oil is not strong… because demand for the stuff Eagle Point et al. used to turn crude oil into, is still poor. Be that as it may, the NYMEX contango will encourage refiners to liquidate inventory.
The explicit risk today for the bears is this: the market will look upon this liquidation of crude oil stocks as a sign of demand and the market will act accordingly.
Thus, in the weeks ahead we will want to watch the products stockpiles and the Brent crude oil market. For instance, whereas the NYMEX WTI curve has collapsed since August, the Brent curve in London is essentially unchanged (see chart in today’s issue of The Schork Report). Given that Brent is a better marker for global demand, that is not a good sign for the bulls.
What’s more, per yesterday’s report, production of seasonal distillate fuels soared last week, but production of gasoline spiked as well; as of last week production of gasoline jumped to the highest level since the end of the 2008 driving season, 9.42 MMbbl/d. Thus, what we are currently seeing is a shift in the surplus. Refiners are boiling down crude oil and transferring the glut to the products markets; where the forward curve is more conducive for carrying inventory.
As such, stocks of gasoline and distillates are surging through seasonal norms. If demand was really strong, that would not be happening. But, then again, if demand was really strong a refiner could actually make money refining oil.
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.