April 16, 2008
By Tom Waterman
New York, NY – Here we are at the middle of the week and so far, the commodity manipulators have done fine work thus far. New records in crude oil this week and now we’re poised for a new record in gasoline. Overnight, the market is slightly higher for oil commodities, but when you read the wire services you can get a glimpse of what is coming later this morning.
The hype began in Europe and Asia and it’s spreading to the U.S. this morning. Here are some facts.
First, crude oil inventories worldwide are at GLUT proportions. U.S. gasoline inventories are at GLUT proportions. Distillate inventories are adequate.
The very minor supply glitches that have occurred this week did nothing to change the fundamental weakness in world oil markets, much less the U.S. market where demand is falling fast.
“Recent production outages are causing particular concern in the present market amid longer-term worries over stockpile levels in major consumer countries, analysts said,” according to one of the services. That’s how out of touch the commodities markets are with physical markets. Physical traders continue to tell us they can get anything they want whenever they want in whatever volume they want, and have many choices available. And they do not anticipate that situation changing.
“Meanwhile, reports also emerged of minor supply outages in Nigeria, Africa’s biggest oil producer, after rebels caused a fire at the Beniboye oil plants in the Delta State of Nigeria,” reported one of the services.
Any reference to Nigeria is simply absurd at this juncture. We have heard through various sources that the outage was about 5,000 bpd. As we noted yesterday, Nigeria spills that much every day, or it’s stolen.
Now, the “fix.”
“An expected upswing in refinery runs should restrict the size of any crude oil build, but gasoline stockpiles were expected to have dropped by 1.7 million barrels, the analysts predicted, while stocks of distillates, which include heating oil, are seen falling by 1.5 million barrels.”
If gasoline stocks fall by just 1.7 million barrels in the EIA report, that would be a dramatically bearish development. A decline of anywhere from 3.5 to 5.5 million barrels would not surprise us at all. When and if that occurs, the market will leap forward because of the “UNEXPECTED” decline in U.S. gasoline inventories.
The “fix” is in. In a market that does not move based on any fundamental reality, it’s amazing how they can spin a “normal” event such as drawdown in winter grade gasoline, which always occurs at this time of year, and claim “fundamental strength,” as a result.
Speculation is part of commodity trading, but not at the rate and influence it now boasts. It has reduced commodity trading to a casino game that the large hedge funds and commission houses win all the time. They have the strength to impose their collective will, force out smaller traders whenever they want and clean up on the other end. It has ended small and mid-sized hedging.
They use the wire services as their mouthpieces to promote their “book” helping to guarantee the steady flow of profits from a market that can only move higher, never lower. And it is out of control.