"Ride my see saw, take this place on this trip just for me"
It all does feel a little acid induced and something that is beyond the comprehension of markets. Oil prices are back up 4.5% today.
With oil volatility continuing high as yesterday's route after Tuesday's spike today is met by another pop so let's discuss once again the psychic element of what's going on: Yesterday's action was driven by API data followed by DOE data and both showed massive inventory builds, millions of barrels a day more than the market needs (6.3m bpd build) . Nothing new here despite the previous weeks’ headlines on potential production pullbacks from capex cuts and rig count reduction. In fact these two seemingly contradictory combinations of data points do indeed go very well together. There should be no reduction in inventory now and in fact US producers probably pumping as hard as they can until hedges come off. Supply issues only exacerbated by a warm winter. But the outlook remains interesting for oil to get to $65-70bbl in 2H’15.
I get the sense the investor community is happy to see oil move back lower as many still remain negative and underweight and would be frustrated if not furious to miss the real rally back in oil. No question those investors did not miss the real rally back and oil. Listening to some of the smartest oil analysts on the street, the view is one of prolonged weakness and extended pressure on oil equities which still are priced for $70/oil. Now, I am not an oil analyst (although I play one on TV now and again) but I would make the call that things always overshoot and the move to $45 Brent was that.
What was concerning and interesting about yesterday's data was the following gasoline lack of gas demand despite lower prices at the pump and what had been multiple weeks of demand growth. Let's watch these numbers because not only can they be noisy but they may not be telling us the same story they will when we get more into driving season. As we noted yesterday gasoline demand is the best leading indicator for oil and the US driver is still almost 25% of the world’s oil demand amazing.